NOTE 87 – Earnings per share
Our earnings per share (basic and diluted) are presented below (in thousands, of dollars, except per share amounts): |
| | | | | | | | | | | | | | | |
| Quarter ended Sept. 30, | | Nine months ended Sept. 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | |
Net income from continuing operations | $ | 50,754 |
| | $ | 76,737 |
| | $ | 144,682 |
| | $ | 211,615 |
|
(Loss) income from discontinued operations, net of tax | (10,803 | ) | | 56,698 |
| | (233,261 | ) | | 132,141 |
|
Net loss (income) attributable to noncontrolling interests from discontinued operations | 2,806 |
| | (14,752 | ) | | 58,698 |
| | (40,178 | ) |
Net income (loss) attributable to TEGNA Inc. | $ | 42,757 |
| | $ | 118,683 |
| | $ | (29,881 | ) | | $ | 303,578 |
|
| | | | | | | |
Weighted average number of common shares outstanding - basic | 215,863 |
| | 214,813 |
| | 215,558 |
| | 216,865 |
|
Effect of dilutive securities: | | | | |
|
| |
|
|
Restricted stock units | 828 |
| | 1,630 |
| | 880 |
| | 1,662 |
|
Performance share units | 721 |
| | 775 |
| | 674 |
| | 1,049 |
|
Stock options | 683 |
| | 881 |
| | 715 |
| | 935 |
|
Weighted average number of common shares outstanding - diluted | 218,095 |
| | 218,099 |
| | 217,827 |
| | 220,511 |
|
| | | | | | | |
Earnings from continuing operations per share - basic | $ | 0.24 |
| | $ | 0.36 |
| | $ | 0.67 |
| | $ | 0.98 |
|
(Loss) earnings from discontinued operations per share - basic | (0.04 | ) | | 0.19 |
| | (0.81 | ) | | 0.42 |
|
Net income (loss) per share - basic | $ | 0.20 |
| | $ | 0.55 |
| | $ | (0.14 | ) | | $ | 1.40 |
|
| | | | | | | |
Earnings from continuing operations per share - diluted | $ | 0.23 |
| | $ | 0.35 |
| | $ | 0.66 |
| | $ | 0.96 |
|
(Loss) earnings from discontinued operations per share - diluted | (0.04 | ) | | 0.19 |
| | (0.80 | ) | | 0.42 |
|
Net income (loss) per share - diluted | $ | 0.19 |
| | $ | 0.54 |
| | $ | (0.14 | ) | | $ | 1.38 |
|
| | | | | | | | | | | | | | | |
| Quarter ended Mar. 31, | | |
| 2021 | | 2020 | | | | |
| | | | | | | |
Net Income | $ | 112,832 | | | $ | 86,198 | | | | | |
Net (income) loss attributable to the noncontrolling interest | (215) | | | 110 | | | | | |
Adjustment of redeemable noncontrolling interest to redemption value | (72) | | | (203) | | | | | |
Earnings available to common shareholders | $ | 112,545 | | | $ | 86,105 | | | | | |
| | | | | | | |
Weighted average number of common shares outstanding - basic | 220,602 | | | 218,277 | | | | | |
Effect of dilutive securities: | | | | | | | |
Restricted stock units | 410 | | | 284 | | | | | |
Performance shares | 182 | | | 298 | | | | | |
Stock options | 4 | | | 4 | | | | | |
Weighted average number of common shares outstanding - diluted | 221,198 | | | 218,863 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net income per share - basic | $ | 0.51 | | | $ | 0.40 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net income per share - diluted | $ | 0.51 | | | $ | 0.39 | | | | | |
Our calculation of diluted earnings per share includes the impact ofdilutive effects for the assumed vesting of outstanding restricted stock units and performance share units, and the exercise of outstanding stock options based on the treasury stock method when dilutive. The diluted earnings per share amounts exclude the effects of approximately 96,000 and 142,000 stock awards for the three and nine months ended September 30, 2017, respectively; and 192,000 and 292,000 for the three and nine months ended September 30, 2016, respectively, as their inclusion would be accretive to earnings per share.
shares.
NOTE 98 – Fair value measurement
We measure and record certain assets and liabilities at fair value in the accompanying condensed consolidated financial statements certain assets and liabilities at fair value.statements. U.S. GAAP establishes a hierarchy for those instruments measured at fair value that distinguishes between market data (observable inputs) and our own assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1 - Quoted market prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than Level 1 inputs that are either directly or indirectly observable; and
Level 3 - Unobservable inputs developed using our own estimates and assumptions, which reflect those that a market participant would use.
The following table summarizes our assets and liabilities measured at fair value inIn the accompanying Condensed Consolidated Balance Sheets as of September 30, 2017, and December 31, 2016 (in thousands): |
| | | | | | | | | | | | | | | |
| Fair Value Measurements as of Sept. 30, 2017 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | |
Available for sale investment | — |
| | — |
| | — |
| | — |
|
Total | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | |
Deferred compensation investments valued using net asset value as a practical expedient: | | |
Interest in registered investment companies | | | | | | | $ | 14,921 |
|
Fixed income fund | | | | | | | 13,672 |
|
Total investments at fair value | | | | | | | $ | 28,593 |
|
|
| | | | | | | | | | | | | | | |
| Fair Value Measurements as of Dec. 31, 2016 (recast) |
| Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | |
Available for sale investment | 16,744 |
| | — |
| | — |
| | 16,744 |
|
Total | $ | 16,744 |
| | $ | — |
| | $ | — |
| | $ | 16,744 |
|
| | | | | | | |
Deferred compensation investments valued using net asset value as a practical expedient: | | |
Interest in registered investment companies | | | | | | | $ | 10,140 |
|
Fixed income fund | | | | | | | 13,575 |
|
Total investments at fair value | | | | | | | $ | 40,459 |
|
Available for sale investment: Our investment previously consisted of shares of common stock of Gannett Co., Inc., which had been classified as a Level 1 asset as the shares are listed on the New York Stock Exchange. During the secondfirst quarter of 20172021, we recorded an OTTI lossa $1.9 million impairment charge, in the“Other non-operating items, line item of thenet” within our Consolidated Statement of Income, anddue to the decline in the third quarterfair value apparent from an observable price decline of 2017 we sold the investment in its entirety.
Interest in registered investment companies: Theseone of our investments include one fund which invests in intermediate-term investment grade bonds and a fund which invests in equities listed predominantly on European and Asian exchanges. Funds are valued using the net asset values as quoted through publicly available pricing sources and investments are redeemable on request.
Fixed income fund investment: Valued using the net asset value provided monthly by the fund company and shares are generally redeemable on request. There are no unfunded commitments to these investments as of September 30, 2017.
In addition to the financial instruments listed in the table above, we(Level 2). We additionally hold other financial instruments, including cash and cash equivalents, receivables, accounts payable and debt. The carrying amounts for cash and cash equivalents, receivables and accounts payable approximated their fair values. The fair value of our total debt, based on the bid and ask quotes for the related debt (Level 2), totaled $3.49$3.72 billion at September 30, 2017,March 31, 2021, and $4.19$3.79 billion at December 31, 2016.2020.
The sale of the majority of our ownership in CareerBuilder resulted in a $342.9 million pre-tax loss recorded within discontinued operations (see Note 12). The loss includes a goodwill impairment charge of $332.9 million. The valuation used in
NOTE 9 – Other matters
the Step 1 goodwill impairment test was based on the enterprise value determined in the purchase agreement (which represents a Level 3 input in the fair value hierarchy).Litigation
DuringIn the third quarter of 2017,2018, certain national media outlets reported the existence of a fewconfidential investigation by the United States Department of ourJustice Antitrust Division (DOJ) into the local television advertising sales practices of station owners. We received a Civil Investigative Demand (CID) in connection with the DOJ’s investigation. On November 13 and December 13, 2018, the DOJ and 7 other broadcasters settled a DOJ complaint alleging the exchange of competitively sensitive information in the broadcast television industry. In June 2019, we and 4 other broadcasters entered into a substantially identical agreement with DOJ, which was entered by the court on December 3, 2019. The settlement contains no finding of wrongdoing or liability and carries no penalty. It prohibits us and the other settling entities from sharing certain confidential business information, or using such information pertaining to other broadcasters, except under limited circumstances. The settlement also requires the settling parties to make certain enhancements to their antitrust compliance programs, to continue to cooperate with the DOJ’s investigation, and to permit DOJ to verify compliance. We do not expect the costs of compliance to be material.
Since the national media reports, numerous putative class action lawsuits were filed against owners of television stations (the Advertising Cases) in different jurisdictions. Plaintiffs are a class consisting of all persons and entities in the United States who paid for all or a portion of advertisement time on local television provided by the defendants. The Advertising Cases assert antitrust and other claims and seek monetary damages, attorneys’ fees, costs and interest, as well as injunctions against the allegedly wrongful conduct.
These cases have been consolidated into a single proceeding in the United States District Court for the Northern District of Illinois, captioned Clay, Massey & Associates, P.C. v. Gray Television, Inc. et. al., filed on July 30, 2018. At the court’s direction, plaintiffs filed an amended complaint on April 3, 2019, that superseded the original complaints. Although we were impacted by hurricanes Harvey and Irma. In particular, Hurricane Harvey caused major damage to our Houston television station (KHOU), andnamed as a result, we recognized $10.2 milliondefendant in non-cash charges, writing off destroyed equipment16 of the original complaints, the amended complaint did not name TEGNA as a defendant. After TEGNA and recording an impairment4 other broadcasters entered into consent decrees with the DOJ in June 2019, the plaintiffs sought leave from the court to further amend the complaint to add TEGNA and the other settling broadcasters to the valueproceeding. The court granted the plaintiffs’ motion, and the plaintiffs filed the second amended complaint on September 9, 2019. On October 8, 2019, the defendants jointly filed a motion to dismiss the matter. On November 6, 2020, the court denied the motion to dismiss. We deny any violation of law, believe that the building (fair value of the building was determined using a market based valuation). In addition, we incurred $8.4 million in cash expenses related to repairing the studio and office and providing for additional staffing and operational needs to keep the station operating during and immediately following these weather emergencies. Partially offsetting these expenses, we received initial insurance proceeds of $11.0 million ($5.0 million was received as of September 30, 2017 and $6.0 million was received in October 2017). The net expense impact from the hurricane of $7.6 million has been recorded in asset impairment and facility consolidation charges on our Consolidated Statements of Income.
We also recorded a non-cash impairment charge of $5.8 millionclaims asserted in the second quarter of 2017 associated with the write-off of a note receivable from one of our equity method investments (see Note 3).Advertising Cases are without merit, and intend to defend ourselves vigorously against them.
NOTE 10 – Business segment information
Our reportable segment determination is based on our management and internal reporting structure, the nature of products and services offered by the segments, and the financial information that is evaluated regularly by our chief operating decision maker.
Immediately following the spin-off of Cars.com and the sale of our majority stake in CareerBuilder, we began classifying our operations as one operating and reportable segment, Media, which consists of our 46 television stations operating in 38 markets, offering high-quality television programming and digital content. Also now included in the Media Segment is our DMS business which was previously reported in our Digital Segment.
As a result of classifying the former Digital Segment’s historical financial results as discontinued operations there is no remaining activity in 2017 as shown in the tables below. The 2016 activity shown below for our Digital Segment relates to our former Cofactor business which did not meet the criteria for discontinued operation reporting when the business was sold in December 2016. The historical periods below have also been updated to restate the historical results of our DMS business within our Media business.
Segment operating results are summarized as follows (in thousands): |
| | | | | | | | | | | | | | | |
| Quarter ended Sept. 30, | | Nine months ended Sept. 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| | | (recast) | | | | (recast) |
Revenues: | | | | | | | |
Media | $ | 464,264 |
| | $ | 517,021 |
| | $ | 1,412,703 |
| | $ | 1,449,202 |
|
Digital | — |
| | 2,596 |
| | — |
| | 8,031 |
|
Total | $ | 464,264 |
| | $ | 519,617 |
| | $ | 1,412,703 |
| | $ | 1,457,233 |
|
| | | | | | | |
Operating Income (net of depreciation, amortization, asset impairment and facility consolidation charges): | | | | | | | |
Media (a) | $ | 130,338 |
| | $ | 219,766 |
| | $ | 433,629 |
| | $ | 568,163 |
|
Digital | — |
| | (17,832 | ) | | — |
| | (23,300 | ) |
Corporate (a) | (13,477 | ) | | (16,083 | ) | | (43,577 | ) | | (46,974 | ) |
Total | $ | 116,861 |
| | $ | 185,851 |
| | $ | 390,052 |
| | $ | 497,889 |
|
| | | | | | | |
Depreciation, amortization, asset impairment and facility consolidation charges: | | | | | | | |
Media | $ | 27,538 |
| | $ | 18,583 |
| | $ | 67,864 |
| | $ | 59,735 |
|
Digital | — |
| | 15,565 |
| | — |
| | 16,297 |
|
Corporate | 596 |
| | 57 |
| | 1,115 |
| | 3,109 |
|
Total | $ | 28,134 |
| | $ | 34,205 |
| | $ | 68,979 |
| | $ | 79,141 |
|
| | | | | | | |
(a) In the first quarter of 2017, we adopted new accounting guidance that changed the classification of certain components of net periodic pension and other post-retirement benefit expense (post-retirement benefit expense). The service cost component of the post-retirement benefit expense will continue to be presented as an operating expense while all other components of post-retirement benefit expense will be presented as non-operating expense. The prior year period was adjusted to reflect the effects of applying the new guidance. This resulted in an increase to operating income in third quarter of 2017 and 2016 of $1.7 million and $1.8 million and for the nine months ended September 30, 2017 and 2016 of $4.9 million and $5.8 million, respectively. Net income, earnings per share, and retained earnings were not impacted by the new standard. |
NOTE 11 – Other matters
Commitments, contingencies and other matters
We, along with a number of our subsidiaries, also are defendants in other judicial and administrative proceedings involving matters incidental to our business. We do not believe that any material liability will be imposed as a result of theseany of the foregoing matters.
Voluntary Retirement Program
During the first quarter of 2016, we initiated a Voluntary Retirement Program (VRP) at our Media Segment. Under the VRP, Media employees meeting certain eligibility requirements were offered buyout payments in exchange for voluntarily retiring. Eligible non-union employees had until April 7, 2016, to retire under the plan. In 2016, based on acceptances received, we recorded $16.0 million of severance expense. Upon separation, employees accepting the VRP received salary continuation payments primarily based on years of service, the majority of which occurred evenly over the 12-month period following separation date. As of September 30, 2017, we had less than $0.4 million of VRP buyout obligation remaining.
FCC Broadcast Spectrum Program
Congress authorizedIn April 2017, the Federal Communications Commission (FCC) to conductFCC announced the completion of a voluntary incentive auction to reallocate certain spectrum currentlythen occupied by television broadcast stations to mobile wireless broadband services, along with a related “repacking” of the television spectrum for remaining television stations. The repacking requires that certain television stations move to different channels, and some stations will have smaller service areas and/or experience additional interference. Congress announced the results of the auction, including a list of the stations to be repacked, in April 2017. None of our stations will relinquishrelinquished any spectrum rights as a result of the auction, and accordingly we will not receive any incentive auction proceeds. Theauction. By the end of 2020, all of our impacted stations had completed their repacking transitions to their new channels.
Throughout the repacking project the FCC has however, notifiedbeen reimbursing us that 13 of our stations will be repacked to new channels. The repacking process is scheduled to occur over a 39-month period, divided into ten phases. Our stationsfor the costs we have been assigned to phases two through nine, and a majority of our capital expenditures in connection with the repack will occur in 2018 and 2019.
We are eligible to seek reimbursement for costs associated with implementing changes to our facilities required by the repack. The legislation authorizing the incentive auction and repacking established a $1.75 billion fund for reimbursement of costs incurred by stations required to change channels in the repacking. The FCC hasrepacking on a lagged basis. During the first quarter of 2021, we received $1.4 million of reimbursements, which were recorded as a contra operating expense within our “Spectrum repacking reimbursements and other, net” line item on our Consolidated Statement of Income and reported thatas an investing inflow on the aggregate cost estimated by repacked stationsConsolidated Statement of Cash Flows. We expect to completereceive reimbursements for the repack will be almost $1.9 billion. In October 2017, the FCC announced that it had made an approximately $1 billion allocation from the fund to repacked stations to allow those stations to begin to be reimbursed for expenses incurred in connection with the constructionremaining $3.0 million of facilities on reassigned channels. This allocation represents approximately 52%our repacking spend upon completion of the total estimated demand for repack funds. AlthoughFCC’s reimbursement review process.
Related Party Transactions
We have an equity and debt investment in MadHive, Inc. (MadHive) which is a related party of TEGNA. In addition to our investment, we expect the FCC to make additional allocations from the fund, it is not clear at this time whether the FCC ultimately will receive from Congress the additional funds necessary to completely reimburse each repacked station for all amounts incurred in connection with the repack. Beyond the potential for not being reimbursed for all amounts we incur, it is still too early to predict the ultimate impact of the incentive auction and repacking upon our business.
As noted above, while we did not sell any of our spectrum in the auction, we did enter intoalso have a channel sharecommercial agreement with another broadcaster that sold spectrumMadHive where they support our Premion business in acquiring and delivering over-the-top ad impressions. In the auction. Pursuant to the terms of our channel share agreement we received $32.6 million in cash proceeds during the thirdfirst quarter of 2017. These proceeds were deferred2021 and will be amortized on a straight-line basis as other revenue over a 20 year period. The $32.6 million cash proceeds were reflected as cash flow from operating activities on our Condensed Consolidated Statements of Cash Flow.
NOTE 12 – Discontinued operations
Cars.com spin-off
On May 31, 2017,2020, we completed the previously announced spin-off of Cars.com creating two publicly traded companies: TEGNA, an innovative media company with the largest broadcast group among major network affiliates in the top 25 markets; and Cars.com, a leading digital automotive marketplace. The spin-off was effected through a pro rata distribution of all outstanding common shares of Cars.com to TEGNA stockholders of record at the close of business on May 18, 2017 (the “Record Date”). Stockholders retained their TEGNA shares and received one share of Cars.com for every three shares of TEGNA stock they owned on the Record Date. Cars.com began “regular way” trading on the New York Stock Exchange on June 1, 2017 under the symbol “CARS”. In connection with the Cars.com spin-off, we received a one time tax-free cash distribution from Cars.com of $650.0 million. In the second quarter of 2017, we used $609.9 million of the tax-free distribution proceeds to fully pay down outstanding revolving credit agreement borrowings. In October 2017, we used the remainder of the proceeds to pay down a portion of the outstanding principal on unsecured notes due in October 2019 (see Note 5).
Separation Agreement
We entered into a separation agreement with Cars.com which sets forth, among other things, the identified assets transferred, the liabilities assumed and the contracts assigned to each of TEGNA and Cars.com as part of the separation and the conditions related to the distribution of Cars.com outstanding stock to TEGNA stockholders.
Transition Services Agreement
We entered into a transition services agreement with Cars.com prior to the distribution pursuant to which we and our subsidiaries will provide certain services to Cars.com on an interim and transitional basis, not to exceed 24 months. The services to be provided include certain tax, human resource and risk management consulting services, and certain other short term services to complete a limited number of ongoing analysis projects. The agreed upon charges for such services are generally intended to allow us to recover all costs andincurred expenses of providing such services,$23.9 million and such charges are not expected to be material to either us or Cars.com.
The transition services agreement will terminate on the expiration of the term of the last service provided under it, with a minimum service period of 60 days and a maximum service period of 24 months, with most services expected to last for less than the maximum service period following the distribution date. Cars.com generally can terminate a particular service prior to the scheduled expiration date, subject generally to the minimum service period and a minimum notice period of 45 days.
Tax Matters Agreement
Prior to the distribution, we entered into a tax matters agreement that governs the parties’ respective rights, responsibilities and obligations with respect to taxes (including taxes arising in the ordinary course of business and taxes, if any, incurred$10.5 million, respectively, as a result of any failure of the distribution and certain related transactions to qualify as tax-free for U.S. federal income tax purposes), tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and assistance and cooperation in respect of tax matters.
Employee Matters Agreement
We entered into an employee matterscommercial agreement with Cars.com prior to the distribution to allocate liabilitiesMadHive. As of March 31, 2021 and responsibilities relating to employment matters, employee compensationDecember 31, 2020 we had accounts payable and benefit plans and programs and other related matters. The employee matters agreement governs certain compensation and employee benefit obligations with respect to the current and former employees and non-employee directors of each company.
The employee matters agreement provides that, unless otherwise specified, Cars.com will be responsible foraccrued liabilities associated with employees who will be employed by Cars.com following the spin-off and former employees whose last employment was with the Cars.com businesses, and we will be responsible for all other current and former TEGNA employees. Cars.com will retain sponsorshipcommercial agreement of 401(k) retirement plans, deferred compensation plans and other incentive plans maintained for the exclusive benefit of Cars.com employees as well as various welfare plans applicable to the Cars.com employees.
CareerBuilder Sale
On July 31, 2017, we sold our majority ownership interest in CareerBuilder to an investor group led by investment funds managed by affiliates of Apollo Global Management, LLC, a leading global alternative investment manager, and the Ontario Teachers’ Pension Plan Board. Our share of the pre-tax net cash proceeds from the sale was $198.3 million. These net proceeds were used in October 2017 to pay down existing debt (see Note 5). Additionally, during the third quarter of 2017 and prior to the closing of the sale, CareerBuilder issued a final dividend to its selling shareholders, of which $25.8 million was retained by TEGNA. As part of the agreement, we remain an ongoing partner in CareerBuilder, reducing our 53% controlling interest to approximately 17% interest (or approximately 12% on a fully-diluted basis) and two seats on CareerBuilder’s 10 person board. As a result, subsequent to the sale, CareerBuilder is no longer consolidated within our reported operating results. Our remaining ownership interest will be accounted for as an equity method investment. Subsequent to the date of sale we recorded $0.5 million of equity earnings during the remainder of the third quarter of 2017 from our remaining interest in CareerBuilder.
Financial Statement Presentation of Digital Segment
As a result of the Cars.com and CareerBuilder transactions described above, the operating results and financial position of our former Digital Segment have been included in discontinued operations in the Condensed Consolidated Balance Sheet and Consolidated Statements of Income for all applicable periods presented. The results of discontinued operations for the nine months ended September 2017 include a $342.9 million pre-tax loss related to the sale of CareerBuilder (after noncontrolling interest, $271.7 million of the pre-tax loss is attributable to TEGNA). The pre-tax loss includes a goodwill impairment charge of $332.9$6.6 million and costs to sell the business of $10.9 million. Fair value used for the pre-tax loss was based on the enterprise value of CareerBuilder as determined in the definitive purchase agreement.$13.5 million, respectively.
The carrying value of the assets and liabilities of our former Digital Segment’s discontinued operations as of December 31, 2016 were as follows (in thousands):
|
| | | |
| |
| Dec. 31, 2016 |
| |
ASSETS | |
Cash and cash equivalents | $ | 61,041 |
|
Accounts receivable, net | 214,171 |
|
Property and equipment, net | 74,695 |
|
Goodwill | 1,488,112 |
|
Other Intangibles, net | 1,718,592 |
|
Other assets | 71,193 |
|
Total assets | $ | 3,627,804 |
|
| |
LIABILITIES | |
Accounts payable | $ | 166,853 |
|
Deferred revenue | 110,071 |
|
Deferred tax liability | 280,264 |
|
Other liabilities | 66,969 |
|
Total liabilities | $ | 624,157 |
|
The financial results of discontinued operations in the third quarter and the nine months ended September 30, 2017 and 2016 are presented as a loss (income) from discontinued operations, net of tax, on our Consolidated Statements of Income. The following table presents the financial results of discontinued operations (in thousands):
|
| | | | | | | | | | | | | | | |
| Quarter ended Sept. 30, | | Nine months ended Sept. 30, |
| 2017 (1) | | 2016 | | 2017 (1) | | 2016 (2) |
| | | | | | | |
Operating revenues | $ | 54,874 |
| | $ | 340,649 |
| | $ | 647,021 |
| | $ | 999,929 |
|
| | | | | | | |
Cost of revenue and SG&A expenses | 60,301 |
| | 228,152 |
| | 522,287 |
| | 708,815 |
|
Depreciation | — |
| | 9,421 |
| | 19,569 |
| | 24,843 |
|
Amortization | — |
| | 23,385 |
| | 40,300 |
| | 68,159 |
|
Loss on sale of CareerBuilder | (1,872 | ) | | — |
| | 342,900 |
| | — |
|
Total operating expenses | 58,429 |
| | 260,958 |
| | 925,056 |
| | 801,817 |
|
| | | | | | | |
Total operating (loss) income | (3,555 | ) | | 79,691 |
| | (278,035 | ) | | 198,112 |
|
| | | | | | | |
Non-operating income (expense) | 647 |
| | (3,304 | ) | | (1,078 | ) | | (8,989 | ) |
| | | | | | | |
(Loss) income from discontinued operations, before income taxes | (2,908 | ) | | 76,387 |
| | (279,113 | ) | | 189,123 |
|
Provision for income taxes | (7,895 | ) | | (19,689 | ) | | 45,852 |
| | (56,982 | ) |
(Loss) income from discontinued operations, net of tax | $ | (10,803 | ) | | $ | 56,698 |
| | $ | (233,261 | ) | | $ | 132,141 |
|
| | | | | | | |
(1) The quarter and nine months ended September 30, 2017 include CareerBuilder’s operations through the date of sale on July 31, 2017. Cars.com operations are included in the nine months ended September 30, 2017 through the date of spin-off on May 31, 2017. |
(2) The nine months ended September 30, 2016 include approximately $7.5 million of net loss from discontinued operations related to the operations of our former Sightline business through the date of sale on March 18, 2016. |
In our Consolidated Statements of Cash Flows, the cash flows from discontinued operations are not separately classified. As such, major categories of discontinued operation cash flows for the nine months ended September 30, 2017 and 2016 are presented below (in thousands):
|
| | | | | | | |
| Nine months ended Sept. 30, |
| 2017 (1) | | 2016 |
| | | |
Depreciation | $ | 19,569 |
| | $ | 24,843 |
|
Amortization | 40,300 |
| | 68,159 |
|
Capital expenditures | 37,441 |
| | 38,825 |
|
Payments for acquisitions, net of cash acquired | $ | — |
| | $ | 196,750 |
|
| | | |
(1) The nine months ended September 30, 2017 includes Cars.com through the spin-off date of May 31, 2017 and CareerBuilder’s operations through the date of sale on July 31, 2017. |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Company Overview
We are an innovative media company that serves the greater good of our communities. Across platforms, we tell empowering stories, conduct impactful investigations and deliver innovative marketing services. With 4664 television stations and two radio stations in 3851 U.S. markets, we are the largest owner of top four network affiliates in the top 25 markets among independent station groups, reaching approximately one-third39% of allU.S. television households nationwide.households. We also own leading multicast networks True Crime Network and Quest. Each television station also has a robust digital presence across online, mobile, connected television and social platforms, reaching consumers whenever, whereveron all devices and platforms they are. Each month, we reach 50 million adults on-air and 35 million across our digital platforms.use to consume news content. We have been consistently honored with the industry’s top awards, including Edward R. Murrow, George Polk, Alfred I. DuPont and Emmy Awards. WeThrough TEGNA Marketing Solutions (TMS), our integrated sales and back-end fulfillment operations, we deliver results for advertisers through unparalleledacross television, digital and innovative solutionsover-the-top (OTT) platforms, including Premion, our Over the Top (“OTT”) localOTT advertising network, Premion, centralized marketing resource, Hatch; and our digital marketing services (DMS) business, a one-stop shop for local businesses to connect with consumers through digital marketing. Across platforms, we tell empowering stories, conduct impactful investigations and deliver innovative marketing solutions. network.
We continue to make innovative programming a priority and invest in local news and other special programming to ensure we stay connected to our audiences and empower them throughout the day. For example, we recently launched VERIFY news, a fact-checking segment across platforms, and HeartThreads, a new national digital content vertical. Additionally, in September 2017 we premiered our TEGNA-owned daily live syndicated program “Daily Blast LIVE,” which airs on 36 TEGNA stations and nationally on Facebook and YouTube. Also in September, we launched a daily talk show, “Sister Circle,” produced out of WATL in Atlanta, which airs in 12 TEGNA markets and nationally live on TV One, reaching 60% of U.S. television households. Finally, our KXTV station in Sacramento partnered with Cheddar network to launch “Cheddar Local,” which provides KXTV with local business and technology segments relevant to the Sacramento community.
After completing the strategic actions discussed below, we now have one operating and reportable segment. The primary sources of our revenues are: 1) subscription revenues, reflecting fees paid by satellite, cable, OTT (companies that deliver video content to consumers over the Internet) and telecommunications providers to carry our television signals on their systems; 2) advertising & marketing services (AMS) revenues, which include local and national non-political television advertising, as well as DMSdigital marketing services (including Premion), and advertising on the stations’ websites, and tablet and mobile products; 2)products and OTT apps; 3) political advertising revenues, which are driven by electionseven year election cycles at the local and peak in even yearsnational level (e.g. 2016, 2014)2020, 2018) and particularly in the second half of those years; 3) subscription revenues, representing fees primarily paid by satellite and cable operators and telecommunications companies to carry our television signals on their systems and OTT revenues; and 4) other services, such as production of programming from third parties and production of advertising material.
As illustrated in the table below, our business continues to evolve toward growing recurring and highly profitable revenue streams, driven by the increasing concentration of both political and subscription revenue streams. As a result of the growing importance of even-year political advertising on our results, management increasingly looks at revenue trends over two-year periods. High margin-subscription and political revenues account for approximately half of our total two-year revenue, a trend that began in 2019, and are expected to comprise an increasingly larger percentage on a rolling two-year cycle thereafter.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Two Years Ending March 31, | | | | |
| 2021 | | | 2020 | | | | | | | | |
| | | | | | | | | | | | |
Advertising & Marketing Services | 45 | % | | | 50 | % | | | | | | | | |
Subscription | 45 | % | } | 54% | 42 | % | } | 49% | | | | | | |
Political | 9 | % | 7 | % | | | | | | |
Other | 1 | % | | | 1 | % | | | | | | | | |
Total revenues | 100 | % | | | 100 | % | | | | | | | | |
COVID-19 Update
During fiscal year 2020 and continuing into 2021, the world has been, and continues to be, impacted by the novel coronavirus (COVID-19) pandemic. The COVID-19 pandemic has brought unprecedented challenges and widespread economic and social change throughout the United States. The U.S. economy continued on a path to recovery during the first quarter of 2021 with millions of Americans receiving COVID-19 vaccines and states/municipalities increasingly reopening. In addition, the U.S. federal government continued to enact policies to provide fiscal stimulus to the economy and relief to those affected by the pandemic, with the most recent stimulus expected to bolster household finances as well as those of small businesses, states and municipalities. Our AMS revenues were most negatively impacted by the pandemic, but we have continued to experience quarterly sequential improvements since the height of the pandemic in the second quarter of 2020.
The roll out of vaccines together with lower COVID-19 case counts are encouraging. That said, the impact of COVID-19 and the extent of its adverse impact on our financial and operating results will be dictated by the length of time that the pandemic continues to affect our advertising customers. This will depend on future pandemic-related developments, including the duration of the pandemic, any potential subsequent waves of COVID-19 virus, the effectiveness, distribution and acceptance of COVID-19 vaccines, and related U.S. government actions to prevent and manage the virus spread, all of which are uncertain and cannot be predicted. While we use the best information available in developing significant estimates included in our financial statements, the effects of the pandemic on our operations may not be fully realized, or reflected in our financial results, until future periods. As such, actual results could differ from our estimates, and these differences resulting from changes in facts and circumstances could be material.
Consolidated Results from Operations
The following discussion is a comparison of our consolidated results on a GAAP basis. The year-to-year comparison of financial results is not necessarily indicative of future results. In addition, see the section titled “Results from Operations - Non-GAAP Information” for additional tables presenting information which supplements our financial information provided on a GAAP basis.
As discussed above, our operating results are subject to significant fluctuations across yearly periods (primarily driven by even-year election cycles). As such, in addition to one year ago comparisons, our management team and Board of Directors also review current period operating results compared to the annual period two years ago (e.g., 2021 vs. 2019). We believe this comparison will also provide useful information to investors, and therefore, we have supplemented our prior year comparison of consolidated results to also include a comparison against the first quarter of 2019 results (through operating income).
During 2019, we acquired multiple local television stations and multicast networks. Specifically, we acquired the Gray stations (January 2, 2019), Justice (recently rebranded as True Crime Network) and Quest multicast networks (June 18, 2019), the Dispatch stations (August 8, 2019) and the Nexstar stations (September 19, 2019). The multicast networks, Dispatch stations, and Nexstar stations are collectively referred to as the “2019 Acquisitions” in the discussion that follows. These 2019 Acquisitions did not contribute to the periods prior to their acquisition in our financial statements which impacts the current quarter to prior two year period comparability of our consolidated operating results. The Gray stations do not impact the 2021 to 2019 comparability.
Our consolidated results of operations on a GAAP basis were as follows (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Mar. 31, | | |
| 2021 | | 2020 | | Change from 2020 | | 2019 | | Change from 2019 | | | | | | |
| | | | | | | | | | | | | | | |
Revenues | $ | 727,051 | | | $ | 684,189 | | | 6 | % | | $ | 516,753 | | | 41 | % | | | | | | |
| | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | |
Cost of revenues | 394,692 | | | 369,368 | | | 7 | % | | 281,311 | | | 40 | % | | | | | | |
Business units - Selling, general and administrative expenses | 89,326 | | | 92,968 | | | (4 | %) | | 71,465 | | | 25 | % | | | | | | |
Corporate - General and administrative expenses | 16,870 | | | 21,714 | | | (22 | %) | | 14,735 | | | 14 | % | | | | | | |
Depreciation | 15,896 | | | 16,900 | | | (6 | %) | | 14,917 | | | 7 | % | | | | | | |
Amortization of intangible assets | 15,760 | | | 16,216 | | | (3 | %) | | 8,689 | | | 81 | % | | | | | | |
Spectrum repacking reimbursements and other, net | (1,423) | | | (7,515) | | | (81 | %) | | (7,013) | | | (80 | %) | | | | | | |
Total operating expenses | $ | 531,121 | | | $ | 509,651 | | | 4 | % | | $ | 384,104 | | | 38 | % | | | | | | |
| | | | | | | | | | | | | | | |
Total operating income | $ | 195,930 | | | $ | 174,538 | | | 12 | % | | $ | 132,649 | | | 48 | % | | | | | | |
| | | | | | | | | | | | | | | |
Non-operating expenses | (47,484) | | | (67,215) | | | (29 | %) | | (35,896) | | | 32 | % | | | | | | |
Provision for income taxes | 35,614 | | | 21,125 | | | 69 | % | | 22,774 | | | 56 | % | | | | | | |
Net income | 112,832 | | | 86,198 | | | 31 | % | | 73,979 | | | 53 | % | | | | | | |
Net (income) loss attributable to redeemable noncontrolling interest | (215) | | | 110 | | | *** | | — | | | *** | | | | | | |
Net income attributable to TEGNA Inc. | $ | 112,617 | | | $ | 86,308 | | | 30 | % | | $ | 73,979 | | | 52 | % | | | | | | |
| | | | | | | | | | | | | | | |
Net income per share - basic | $ | 0.51 | | | $ | 0.40 | | | 28 | % | | $ | 0.34 | | | 50 | % | | | | | | |
Net income per share - diluted | $ | 0.51 | | | $ | 0.39 | | | 31 | % | | $ | 0.34 | | | 50 | % | | | | | | |
| | | | | | | | | | | |
*** Not meaningful |
Revenues
Our Subscription revenue category includes revenue earned from cable and satellite providers for the right to carry our signals and the distribution of TEGNA stations on OTT streaming services. Our AMS category includes all sources of our traditional television advertising and digital revenues including Premion and other digital advertising and marketing revenues across our platforms.
Our revenues and operating results are subject to seasonal fluctuations. Generally, our second and fourth quarter revenues and operating results are stronger than those we report for the first and third quarter. This is driven by the second quarter reflecting increased spring seasonal advertising, while the fourth quarter typically includes increased advertising related to the holiday season. In addition, our revenue and operating results are subject to significant fluctuations across yearly periods resulting from political advertising. In even numbered years, political spending is usually significantly higher than in odd numbered years due to advertising for the local, state and national elections. Additionally, every four years, we typically experience even greater increases in political advertising in connection with the presidential election. The strong demand for advertising from political advertisers in these even years can result in the significant use of our available inventory (leading to a “crowd out” effect), which can diminish our AMS revenue in the even year of a two year election cycle, particularly in the fourth quarter of those years.
The following table summarizes the year-over-year changes in our revenue categories (in thousands):
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| Quarter ended Mar. 31, | | |
| 2021 | | 2020 | | Change from 2020 | | 2019 | | Change from 2019 | | | | | | |
| | | | | | | | | | | | | | | |
Subscription | $ | 386,737 | | | $ | 332,802 | | | 16 | % | | $ | 241,575 | | | 60 | % | | | | | | |
Advertising & Marketing Services | 322,834 | | | 295,153 | | | 9 | % | | 264,402 | | | 22 | % | | | | | | |
Political | 9,428 | | | 47,387 | | | (80) | % | | 2,704 | | | *** | | | | | | |
Other | 8,052 | | | 8,847 | | | (9) | % | | 8,072 | | | — | % | | | | | | |
Total revenues | $ | 727,051 | | | $ | 684,189 | | | 6 | % | | $ | 516,753 | | | 41 | % | | | | | | |
| | | | | | | | | | | | | | | |
*** Not meaningful | | | | | | | | | | | | | | | |
2021 vs. 2020
Total revenues increased $42.9 million in the first quarter of 2021 compared to the same period in 2020. The net increase was primarily due to a $53.9 million increase in subscription revenue, primarily due to annual rate increases under existing and newly renegotiated retransmission agreements. In addition, AMS revenue increased $27.7 million, reflecting an increased demand for advertising, and incremental revenue from the Super Bowl (which aired in 2021 on CBS and therefore reached more than 30% of TEGNA’s households, as compared to 2020 when the game aired on Fox, which reaches fewer than 6% of TEGNA’s households). These increases were partially offset by a decrease in political revenue of $38.0 million, following a presidential election year.
2021 vs. 2019
Total revenues increased $210.3 million in the first quarter of 2021 compared to the same period in 2019. Our 2019 Acquisitions contributed total revenues of $111.4 million in the first quarter of 2021. Excluding the 2019 Acquisitions, total revenues increased $98.9 million. This increase was primarily from a $89.3 million increase in subscription revenue, primarily due to annual rate increases under existing and newly renegotiated retransmission agreements and a $6.4 million increase in political advertising.
Cost of Revenues
2021 vs. 2020
Cost of revenues increased $25.3 million in the first quarter of 2021 compared to the same period in 2020. The increase was primarily due to a $20.6 million increase in programming costs driven by rate increases under existing and newly renegotiated affiliation agreements and growth in subscription revenues (certain programming costs are linked to such revenues).
2021 vs. 2019
Cost of revenues increased $113.4 million in the first quarter of 2021 compared to the same period in 2019. Our 2019 Acquisitions added cost of revenues of $58.6 million in the first quarter of 2021. Excluding the 2019 Acquisitions, cost of revenues increased $54.8 million. The increase was primarily due to a $45.3 million increase in programming costs and an increase in digital expenses of $5.7 million driven by growth in Premion.
Business Units - Selling, General and Administrative Expenses
2021 vs. 2020
Business unit selling, general and administrative expenses (SG&A) decreased $3.6 million in the first quarter of 2021 compared to the same period in 2020. The decrease was primarily due to a $3.0 million reduction in bad debt expense, attributed to improved collection trends as a result of continued recovery in the economy.
2021 vs. 2019
Business unit SG&A expenses increased $17.9 million in the first quarter of 2021 compared to the same period in 2019. Our 2019 Acquisitions added business unit SG&A expenses of $12.4 million in the first quarter of 2021. Excluding the 2019 Acquisitions, SG&A expenses increased $5.5 million. This increase was primarily due to a $1.8 million increase in professional fees and a $1.2 million increase in stock based compensation expense (driven by higher stock price).
Corporate General and Administrative Expenses
Our corporate costs are separated from our business expenses and are recorded as general and administrative expenses in our Consolidated Income Statement. These costs include activities that are not directly attributable or allocable to our media business operations.Statement of Income. This category primarily consists of broad corporate management functions including legal, human resources,Legal, Human Resources, and finance,Finance, as well as activities and costs not directly attributable to the operations of our media business.
Strategic Actions2021 vs. 2020
On May 31, 2017, we completed the previously announced spin-off of Cars.com. The spin-off was achieved through a pro rata distribution of all outstanding common shares of Cars.com to TEGNA stockholders of record at the close of business on May 18, 2017 (the “Record Date”). Stockholders retained their TEGNA shares and received one share of Cars.com for every three shares of TEGNA stock they owned on the Record Date. Cars.com began “regular way” trading on the New York Stock Exchange on June 1, 2017 under the symbol “CARS”. In connection with the Cars.com spin-off we received a one time cash distribution from Cars.com of $650.0 million.
On July 31, 2017, we completed the sale of our majority ownership interest in CareerBuilder to an investor group led by investments funds managed by affiliates of Apollo Global Management, LLC, a leading global alternative investment manager,
and the Ontario Teachers’ Pension Plan Board. Our share of the pre-tax net cash proceeds from the sale was $198.3 million. These net proceeds were used in October 2017 to pay down existing debt (see Note 5). Additionally, prior to the sale, CareerBuilder issued a final dividend to its selling shareholders, $25.8 million of which was retained by TEGNA.
As part of the sale agreement, we remain an ongoing partner in CareerBuilder, reducing our 53% controlling interest to approximately 17% equity interest (or approximately 12% on a fully-diluted basis) and two seats on CareerBuilder’s 10 member board. As a result, CareerBuilder is no longer consolidated within our reported operating results. Our remaining ownership interest is accounted for as an equity method investment.
Consolidated Results from Operations
The following discussion is a period-to-period comparison of our consolidated results from continuing operations on a GAAP basis. On May 31, 2017, we completed the spin-off of Cars.com and on July 31, 2017, we completed the sale of our majority ownership interest in CareerBuilder. Results for Cars.com and CareerBuilder are now reflected as Discontinued Operations in our Consolidated Statements of Income for all applicable periods presented. As a result, we will report one segment going forward which will include the results for Media and a remaining DMS contract that was previously reported in the Digital Segment. The historical financial results also include our former Cofactor business through the date of its sale in December 2016.
The period-to-period comparison of financial results is not necessarily indicative of future results. In addition, see the section on page 26 titled ‘Results from Operations - Non-GAAP Information’ for additional tables presenting information which supplements our financial information provided on a GAAP basis. Our consolidated results of continuing operations on a GAAP basis were as follows (in thousands, except per share amounts):
|
| | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Sept. 30, | | Nine months ended Sept. 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
| | | (recast) | | | | | | (recast) | | |
Revenues | $ | 464,264 |
| | $ | 519,617 |
| | (11 | %) | | $ | 1,412,703 |
| | $ | 1,457,233 |
| | (3 | %) |
| | | | | | | | | | | |
Operating expenses: | | | | |
|
| | | | | | |
Cost of revenues, exclusive of depreciation | 235,474 |
| | 200,495 |
| | 17 | % | | 696,565 |
| | 590,058 |
| | 18 | % |
Business units - selling, general and administrative expenses, exclusive of depreciation | 70,914 |
| | 83,039 |
| | (15 | %) | | 214,645 |
| | 246,280 |
| | (13 | %) |
Corporate - General and administrative expenses, exclusive of depreciation | 12,881 |
| | 16,027 |
| | (20 | %) | | 42,462 |
| | 43,865 |
| | (3 | %) |
Depreciation | 15,186 |
| | 13,212 |
| | 15 | % | | 41,721 |
| | 42,653 |
| | (2 | %) |
Amortization of intangible assets | 5,395 |
| | 5,775 |
| | (7 | %) | | 16,172 |
| | 17,542 |
| | (8 | %) |
Asset impairment and facility consolidation charges | 7,553 |
| | 15,218 |
| | (50 | %) | | 11,086 |
| | 18,946 |
| | (41 | %) |
Total operating expenses | $ | 347,403 |
| | $ | 333,766 |
| | 4 | % | | $ | 1,022,651 |
| | $ | 959,344 |
| | 7 | % |
| | | | | | | | | | | |
Total operating income | $ | 116,861 |
|
| $ | 185,851 |
| | (37 | %) | | $ | 390,052 |
| | $ | 497,889 |
| | (22 | %) |
| | | | | | | | | | | |
Non-operating expense | (54,660 | ) | | (70,673 | ) | | (23 | %) | | (190,515 | ) | | (194,236 | ) | | (2 | %) |
Provision for income taxes | 11,447 |
| | 38,441 |
| | (70 | %) | | 54,855 |
| | 92,038 |
| | (40 | %) |
Net income from continuing operations | $ | 50,754 |
| | $ | 76,737 |
| | (34 | %) | | $ | 144,682 |
| | $ | 211,615 |
| | (32 | %) |
| | | | | | | | | | | |
Earnings from continuing operations per share - basic | $ | 0.24 |
| | $ | 0.36 |
| | (33 | %) | | $ | 0.67 |
| | $ | 0.98 |
| | (32 | %) |
Earnings from continuing operations per share - diluted | $ | 0.23 |
| | $ | 0.35 |
| | (34 | %) | | $ | 0.66 |
| | $ | 0.96 |
| | (31 | %) |
Revenues
During the second quarter of 2017, we changed the way we present certain revenues, which we now call Advertising and Marketing Services (AMS), to better reflect our sales transformation strategy that focuses on customer needs versus specific products. This category includes all sources of our traditional and digital revenues including Premion, DMS and other digital advertising and marketing revenues across our platforms.
Also, the “Retransmission” revenue category was renamed “Subscription” to better reflect changes in that revenue stream, including the distribution of TEGNA stations on OTT streaming services.
As a result of these changes, revenues are grouped into the following categories: Advertising & Marketing Services, Political, Subscription, Other, and our former business unit Cofactor (sold in December 2016).
The following table summarizes the year-over-year changes in these select revenue categories (in thousands): |
| | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Sept. 30, | | Nine months ended Sept. 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Advertising & Marketing Services (a) | $ | 277,817 |
| | $ | 330,589 |
| | (16 | %) | | $ | 843,175 |
| | $ | 934,977 |
| | (10 | %) |
Political | 3,783 |
| | 38,060 |
| | (90 | %) | | 13,387 |
| | 64,050 |
| | (79 | %) |
Subscription | 177,692 |
| | 143,676 |
| | 24 | % | | 540,344 |
| | 436,292 |
| | 24 | % |
Other | 4,972 |
| | 4,696 |
| | 6 | % | | 15,797 |
| | 13,883 |
| | 14 | % |
Cofactor | — |
| | 2,596 |
| | *** |
| | — |
| | 8,031 |
| | *** |
|
Total | $ | 464,264 |
| | $ | 519,617 |
| | (11 | %) | | $ | 1,412,703 |
| | $ | 1,457,233 |
| | (3 | %) |
| | | | | | | | | | | |
(a) Includes traditional television advertising, digital advertising as well as revenue from our DMS business. |
Revenues decreased $55.4 million, or 11%, in the third quarter of 2017 compared to the same period in 2016. This net decrease was primarily due to a decline in AMS revenue of $52.8 million, or 16%, in the third quarter of 2017. This decline was primarily due to the absence of Olympic revenue in 2017 as compared to $57.3 million in 2016 and lower DMS revenue due to the conclusion of a transition services agreement with Gannett. Partially offsetting the overall AMS decline was an increase in digital revenue, including Premion revenue. Political revenue was down by $34.3 million, due to an expected decrease reflecting the absence of 2016 politically related advertising spending. Partially offsetting these decreases was an increase in subscription revenue of $34.0 million, or 24%, due to the recent renewal of certain retransmission agreements as well as annual rate increases under other existing retransmission agreements.
In the first nine months of 2017, operating revenue decreased $44.5 million, or 3%, compared to the same period in 2016. The net decrease was due to a net decline in AMS revenue of $91.8 million, or 10%, for the first nine months of 2017. The third quarter decline in AMS revenue, described above, drove most of the year-to-date decline. In addition we had lower Super Bowl revenue due to the shift in coverage from our larger CBS station footprint to smaller FOX station footprint (which impacted 2017 results by $9.1 million). These AMS declines were partially offset by an increase in digital revenue, including our Premion revenue. Additionally, political revenue was down $50.7 million for the nine months ended September 30, 2017 due to an expected decrease reflecting the absence of 2016 Presidential election year political spending. Partially offsetting these decreases was an increase in subscription revenue of $104.1 million, or 24%, in the first nine months of 2017 due to the recent renewal of certain retransmission agreements as well as annual rate increases under other existing retransmission agreements.
Cost of Revenues
Cost of revenues increased $35.0 million, or 17%, in the third quarter of 2017 compared to the same period in 2016. The increase was primarily due to a $42.6 million increase in programming costs (primarily driven by 11 of our NBC stations paying reverse compensation payments for first time in 2017). This increase was partially offset by a decline in DMS costs of $7.4 million driven by the conclusion of the transition service agreement with Gannett.
In the first nine months of 2017, cost of revenues increased $106.5 million, or 18%, compared to the same period in 2016. The increase was primarily due to a $135.1 million increase in programming costs (primarily driven by 11 of our NBC stations paying reverse compensation payments for first time in 2017). This increase was partially offset by the absence of $10.8 million of expenses associated with our 2016 voluntary retirement program and a decline in DMS costs of $11.8 million associated with the conclusion of the transition service agreement with Gannett.
Business Units - Selling, General and Administrative Expenses
Business unit selling, general and administrative expenses decreased $12.1 million, or 15%, in the third quarter of 2017 compared to the same period in 2016. The decrease was primarily the result of a $6.0 million decline in DMS selling and advertising expense related to the transition service agreement conclusion. Also contributing to the decline was the absence of $2.6 million of Cofactor expenses, due to its disposition in December 2016.
In the first nine months of 2017, business unit selling, general and administrative expenses decreased $31.6 million, or 13%, compared to the same period in 2016. This decrease was due to a $14.7 million decline in DMS selling and advertising expenses, the absence of $6.5 million of expenses associated with Cofactor, and the absence of $4.0 million of expenses associated with our 2016 voluntary retirement program. These decreases were partially offset by $1.6 million of severance expenses for broadcast employees in 2017.
Corporate General and Administrative Expenses
Corporate general and administrative expenses decreased $3.1$4.8 million or 20%, in the thirdfirst quarter of 20172021 compared to the same period in 2016.2020. The decrease was primarily due todriven by the absence in 2021 of $1.6$4.6 million of severance expenses from the third quarterM&A due diligence costs and a decrease of 2016, as well as the continued right sizing$3.0 million of the corporate functionadvisory fees related to activism defense. Partially offsetting this was a $2.4 million increase in connection with the strategic actions impacting our former Digital Segment.stock-based compensation expense (driven by higher stock price).
During the first nine months of 2017, corporate2021 vs. 2019
Corporate general and administrative expenses decreased $1.4increased $2.1 million or 3%,in the first quarter of 2021 compared to the same period in 2016. This change2019. The increase was primarily due to $4.6 million of advisory fees related to activism defense and a $0.9 million increase in stock-based compensation expense. These increases were partially offset by the absence of $1.6$3.9 million of severance expenses from the third quarter of 2016, partially offset by severance expense incurred in the first nine months of 2017 of approximately $1.1 million. The remaining difference is attributableacquisition-related costs (principally advisory fees) due to the continued right sizing of the corporate functionreduction in connection with the strategic actions impacting our former Digital Segment.acquisition activity in 2021.
Depreciation Expense
2021 vs. 2020
Depreciation expense increased $2.0decreased by $1.0 million or 15%, in the thirdfirst quarter of 20172021 compared to the same period in 2016.2020. The increasedecrease was primarily due to $1.4 milliona decline in capital expenditures following the onset of additionalCOVID-19, resulting in less depreciation related to a change in useful lives of certain broadcasting assets in connection with the FCC channel reassignment process.
In the first nine monthsquarter of 2017, depreciation2021.
2021 vs. 2019
Depreciation expense decreased $0.9increased by $1.0 million or 2%, asin the first quarter of 2021 compared to the same period in 2016. The decrease was2019. Our 2019 Acquisitions added depreciation expense of $3.0 million. Excluding the impact of the 2019 Acquisitions, depreciation expense decreased $2.0 million primarily due to recent declines in the purchase of property and equipment, offset by accelerated depreciation related to a change in useful lives of certain broadcasting assets.
Amortization Expense
Amortization expense decreased by $0.4 million and $1.4 million in the third quarter and first nine months of 2017, respectively, compared to the same periods in 2016. The decreases were a result of certain assets associated with previous acquisitions reaching the end of their assumed useful lives.
Asset Impairment and Facility Consolidation ChargesAmortization Expense
Asset impairment and facility consolidation charges were $7.62021 vs. 2020
Amortization expense decreased $0.5 million in the thirdfirst quarter of 20172021 compared to $15.2the same period in 2020. The decrease was due to certain assets reaching the end of their assumed useful lives, therefore, becoming fully amortized.
2021 vs. 2019
Amortization expense increased $7.1 million in the thirdfirst quarter of 2016. In2021 compared to the thirdsame period in 2019. Our 2019 Acquisitions added amortization expense of $9.7 million. Excluding the impact of the 2019 Acquisitions, amortization expense decreased $2.6 million due to certain assets reaching the end of their assumed useful lives.
Spectrum Repacking Reimbursements and Other, net
2021 vs. 2020
Spectrum repacking reimbursements and other net gains were $1.4 million in the first quarter of 2017, a few television stations were impacted by hurricanes Harvey and Irma. In particular, Hurricane Harvey caused significant damage to our Houston television station (KHOU); as a result, we recognized $10.2 million in non-cash charges, writing off destroyed equipment and recording an impairment to the value of the building. In addition, we incurred $8.4 million in cash expenses related to repairing the studio and office and providing for additional staffing and operational needs to keep the stations operating during and immediately following these weather emergencies. Partially offsetting these expenses, we received initial insurance proceeds of $11.0 million ($5.0 million was received as of September 30, 2017 and $6.0 million was received in October 2017). The net expense impact from the hurricane of $7.6 million has been recorded in asset impairment and facility consolidation charges. The 2016 charge relates to a goodwill impairment at Cofactor.
During the first nine months of 2017, asset impairment and facility consolidation charges were $11.1 million,2021 compared to $18.9net gains of $7.5 million in the same period in 2016.2020. The 2017 charges primarily consisted2021 activity is related to $1.4 million of reimbursements received from the Federal Communications Commission (FCC) for required spectrum repacking, compared to $7.5 million of reimbursements received in the first quarter of 2020.
2021 vs. 2019
Spectrum repacking reimbursements and other net $7.6gains were $1.4 million in expenses relatedthe first quarter of 2021 compared to Hurricane Harvey,net gains of $7.0 million in the same period in 2019. The 2021 activity consists of $1.4 million related toof reimbursements received from the consolidation of office space at corporate headquarters and at our DMS business unit, and $2.2FCC for required spectrum repacking. The 2019 activity reflects $4.1 million of non-cash impairment charges incurred by our broadcast stations. The 2016 charges were comprisedgains due to reimbursements received from the FCC and a $2.9 million gain as a result of the third quarter goodwill impairment chargesale of $15.2 million at Cofactor and a $3.7 million impairment charge related to a long-lived-asset.certain real estate.
Operating Income
2021 vs. 2020
Our operating income decreased $69.0increased $21.4 million or 37%, in the third quarter of 2017 and $107.8 million, or 22%, in the first nine monthsquarter of 2017,2021 compared to the same periodsperiod in 2016.2020. The decreases wereincrease was driven by the changes in revenue and expenses discussed above. As a result, our consolidatedabove, most notably the increase in subscription and AMS revenues.
2021 vs. 2019
Our operating margins were 25% in the third quarter of 2017 and 28%income increased $63.3 million in the first nine months of 2017, compared to 36% in the third quarter of 2016 and 34% in the first nine months of 2016.
Non-Operating Income (Expense)
Non-operating expense decreased $16.0 million, or 23%, in the third quarter of 20172021 compared to the same period in 2016.2019. Results from our 2019 Acquisitions added operating income of $27.7 million in the first quarter of 2021. Excluding the 2019 Acquisitions, operating income increased $35.6 million. The increase was driven by the changes in revenue and expenses discussed above, most notably the increase of subscription revenue.
Non-Operating Expenses
Non-operating expenses decreased $19.7 million in the first quarter of 2021 compared to the same period in 2020. This decrease was primarilypartially due to the absence of a reduction in transaction costs of $10.9$13.8 million primarily associated with costs incurred in the prior year periodcall premium related to the Cars.com spin-off. Also contributingrepayment of our 2023 Senior Notes and acceleration of $7.9 million of previously deferred financing fees associated with the 2023 and 2020 Senior notes that occurred in the first quarter of 2020 due to the decrease was a decline intheir early repayment. Additionally, interest expense of $5.7decreased by $10.5 million driven by a lower average outstanding debt outstanding,and lower average interest rate due to the pay down of the drawn amounts on the revolving line of credit. The totalrefinancings undertaken in 2019 and 2020. Total average outstanding debt was $3.38$3.50 billion forfor the thirdfirst quarter of 2017, 2021, compared to $4.31$4.19 billion in the same period of 2016.2020. The weighted average interest rate on total outstanding debt was 5.75% 5.08% for the thirdfirst quarter of 2017,2021, compared to 5.21%5.27% in the same period of 2016.
During2020. Partially offsetting this decline was the absence of $12.1 million gain related to our share of CareerBuilder’s gain on the sale of its employment screening business recognized in the first nine monthsquarter of 2017, non-operating expenses decreased $3.72020.
Income Tax Expense
Income tax expense increased $14.5 million or 2%,in the first quarter of 2021 compared to the same period in 2016.2020. The decreaseincrease was primarily due to lower interest expense of $13.3 million, partially offset by increased costs associated with the strategic actions of $3.4 million (primarily the Cars.com spin-off) and a $5.8 million loss associated with the write-off of a note receivable from one of our equity method investments. The lower interest expense was due to lower average debt outstanding. The total average outstanding debt was $3.75 billion during the first nine months of 2017, compared to $4.28 billion in the same period of 2016. The weighted average interest rate on total outstanding debt was 5.51% for the first nine months of 2017, compared to 5.32% in the same period of 2016.
Income Tax Expense
Income tax expense decreased $27 million, or 70%, in the third quarter of 2017 as compared to the same period in 2016, and decreased $37.2 million, or 40%, in the first nine months of 2017 compared to the same period in 2016. The decrease in Income tax expense is primarily due to a declinean increase in net income before tax, as well as a favorable deferred tax adjustment related to a previously-disposed business.tax. Our reported effective income tax rate was 18.4% in the third quarter of 2017, compared to 33.4% for continuing operations for the third quarter of 2016. The reported effective income tax rate was 27.5%24.0% for the first nine monthsquarter of 2017,2021, compared to 30.3%19.7% for the same period in 2016.first quarter of 2020. The tax ratesrate for the thirdfirst quarter and first nine months of 2017 are lower2021 is higher than the comparable 2016 ratesamount in 2020 primarily due to 2020 tax benefits from the reductionutilization of capital loss carryforwards in net income before taxconnection with certain disposition transactions and the deferred tax adjustment mentioned above.release of the associated valuation allowance.
Net Income from continuing operationsattributable to TEGNA Inc.
Income from continuing operationsNet income attributable to TEGNA Inc. was $50.8$112.6 million, or $0.23$0.51 per diluted share, in the thirdfirst quarter of 20172021 compared to $76.7$86.3 million, or $0.35$0.39 per diluted share, during the same period in 2016. For the first nine months of 2017, we reported net income from continuing operations of $144.7 million, or $0.66 per diluted share, compared to $211.6 million, or $0.96 per diluted share, for the same period in 2016.2020. Both income from continuing operations and earnings per share were affected by the factors discussed above.above, most notably, an increase in subscription revenue from annual rate increases under existing and newly renegotiated retransmission agreements and an increase of AMS revenue due to increased advertising demand as a result of improving economic conditions.
The weighted average number of diluted shares outstanding in the both the third quarter of 2017 and 2016 was 218.1 million. The weighted average number of dilutedcommon shares outstanding in the first nine months quarter of 2017 decreased by 2.72021 and 2020 were 221.2 million shares to 217.8and 218.9 million, from 220.5 million in the same period in 2016.respectively.
Results from Operations - Non-GAAP Information
Presentation of Non-GAAP information
We use non-GAAP financial performance and liquidity measures to supplement the financial information presented on a GAAP basis. These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, the related GAAP measures, nor should they be considered superior to the related GAAP measures, and should be read together with financial information presented on a GAAP basis. Also, our non-GAAP measures may not be comparable to similarly titled measures of other companies.
Management and our Board of Directors use the non-GAAP financial measures for purposes of evaluating business unit and consolidated company performance. Furthermore, the ExecutiveLeadership Development and Compensation Committee of our Board of Directors uses non-GAAP measures such as Adjusted EBITDA, non-GAAP net income, non-GAAP EPS and free cash flow to evaluate management’s performance. Therefore, we believe that each of the non-GAAP measures presented provides useful information to investors and other stakeholders by allowing them to view our business through the eyes of management and our Board of Directors, facilitating comparisons of results across historical periods and focus on the underlying ongoing operating performance of our business. We also believe these non-GAAP measures are frequently used by investors, securities analysts and other interested parties in their evaluation of our business and other companies in the broadcast industry.
We discuss in this Form 10-Q non-GAAP financial performance measures that exclude from our reported GAAP results the impact of “special items” consistingwhich are described in detail below in the section titled “Discussion of severance expense, charges related to asset impairment and facility consolidations, costs associated with the Cars.com spin-off transaction, and certain tax benefits associated with the Cars.com spin-off and sale of CareerBuilder.Special Charges Affecting Reported Results.” We believe that such expenses charges and gains are not indicative of normal, ongoing operations. SuchWhile these items may be recurring in nature and should not be disregarded in evaluation of our earnings performance, it is useful to exclude such items when analyzing current results and trends compared to other periods as these items can vary significantly from period to period and are significantly impacted by the timing and nature of these events.depending on specific underlying transactions or events that may occur. Therefore, while we may incur or recognize these types of expenses charges and gains in the future, we believe that removing these items for purposes of calculating the non-GAAP financial measures provides investors with a more focused presentation of our ongoing operating performance.
We discuss Adjusted EBITDA (with and without corporate expenses), a non-GAAP financial performance measure that we believe offers a useful view of the overall operation of our businesses. We define Adjusted EBITDA as net income from continuing operationsattributable to TEGNA before (1) net (income) loss attributable to redeemable noncontrolling interest, expense, (2) income taxes, (3) interest expense, (4) equity (loss) income (losses) in unconsolidated investments, net, (4)(5) other non-operating items, net, (6) M&A due diligence costs, (7) advisory fees related to activism defense, (8) spectrum repacking reimbursements and other, net, (9) depreciation and (10) amortization. We believe these adjustments facilitate company-to-company operating performance comparisons by removing potential differences caused by variations unrelated to operating performance, such as spin-off transaction expensescapital structures (interest expense), income taxes, and investment income, (5) severance expense, (6) facility consolidation charges, (7) impairment charges, (8)the age and book appreciation of property and equipment (and related depreciation and (9) amortization.expense). The most directly comparable GAAP financial measure to Adjusted EBITDA is Net income from continuing operations.attributable to TEGNA. Users should consider the limitations of using Adjusted EBITDA, including the fact that this measure does not provide a complete measure of our operating performance. Adjusted EBITDA is not intended to purport to be an alternativealternate to net income as a measure of operating performance or to cash
flows from operating activities as a measure of liquidity. In particular, Adjusted EBITDA is not intended to be a measure of free cash flow available for management’s discretionary expenditures, as this measure does not consider certain cash requirements, such as working capital needs, capital expenditures, contractual commitments, interest payments, tax payments and other debt service requirements.
We also consider adjusted revenues to be an important non-GAAP financial measure. Our adjusted revenue is calculated by taking total company revenues on a GAAP basis and adjusting it to exclude (1) estimated incremental Olympic and Super Bowl revenue, (2) Political revenues, (3) revenues from a previously sold business (Cofactor), and (4) revenues associated with a discontinued portion of our DMS business. These adjustments are made to our reported revenue on a GAAP basis in order to evaluate and assess our core operations on a comparable basis, and it represents the ongoing operations of our broadcast business.
We also discuss free cash flow, a non-GAAP liquidity measure.performance measure that the Board of Directors uses to review the performance of the business. The most directly comparable GAAP financial measure to free cash flow is Net income attributable to TEGNA. Free cash flow is calculated as non-GAAP Adjusted EBITDA (as defined as “net cash flowabove), further adjusted by adding back (1) stock-based compensation, (2) non-cash 401(k) company match, (3) syndicated programming amortization, (4) pension reimbursements, (5) dividends received from operating activities” as reported on the statementequity method investments and (6) reimbursements from spectrum repacking. This is further adjusted by deducting payments made for (1) syndicated programming, (2) pension, (3) interest, (4) taxes (net of cash flows reduced by “purchaserefunds) and (5) purchases of property and equipment”. We believe that free cash flow is a useful measure for management and investors to evaluate the level of cash generated by operations and the ability of its operations to fund investments in new and existing businesses, return cash to shareholders under the company’s capital program, repay indebtedness, add to our cash balance, or use in other discretionary activities. We use free cash flow to monitor cash available for repayment of indebtedness and in discussions with the investment community.equipment. Like Adjusted EBITDA, free cash flow is not intended to be a measure of cash flow available for management’s discretionary use.
Discussion of special charges and credits affecting reported resultsSpecial Charges Affecting Reported Results
Our results for the quarter and first nine months ended September 30, 2017 included the following items we consider “special items” that while at times recurring, can vary significantly from period to period:
Quarter ended March 31, 2021:
•Spectrum repacking reimbursements and are not indicativeother, net consisting of gains due to reimbursements from the FCC for
required spectrum repacking; and
•Advisory fees related to activism defense.
Quarter ended March 31, 2020:
•Spectrum repacking reimbursements and other, net primarily consisting of gains due to reimbursements from the FCC for
required spectrum repacking;
•Advisory fees related to activism defense;
•M&A due diligence costs we incurred to assist prospective buyers of our normal ongoing operations:company with their due diligence;
Operating asset impairment and facility consolidation charges•A gain recognized in our equity income in unconsolidated investments, related to damage caused by Hurricane Harvey andour share of CareerBuilder’s gain on the consolidation
sale of office space at corporate headquarters and at our DMS business unit;its employment screening business;
•Other non-operating items associated with costs of the spin-off of our Cars.com business unit, charitable donations made to the TEGNA Foundation, non-cash asset impairment charges associated with write off of a note receivable from an equity method investment;
A special tax benefit related to deferred tax remeasurement attributable to the spin-off of our Cars.com business unit and a deferred tax adjustment related to a previously-disposed business; and
Severance charges which included payroll and related benefit costs.
Our results for the quarter and first nine months ended September 30, 2016 included the following special items:
Severance charges primarily related to a voluntary retirement program at our broadcast stations (which includes payroll and related benefit costs);
Non-cash asset impairment charges associated with goodwill, an operating asset, and equity method investments; and
Non-operating costs associatedincurred in connection with the spin-offearly extinguishment of our Cars.com business unitdebt; and acquisition-related costs.
•Deferred tax benefits related to partial capital loss valuation allowance release.
Reconciliations of certain line items impacted by special items to the most directly comparable financial measure calculated and presented in accordance with GAAP on our
consolidated statementsConsolidated Statements of
incomeIncome follow (in thousands, except per share amounts):
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| | | | Special Items | | |
Quarter ended September 30, 2017 | | GAAP measure | | Operating asset impairment and facility consolidation | | Other non-operating items | | Tax benefits | | Non-GAAP measure |
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Operating expenses | | $ | 347,403 |
| | $ | (7,553 | ) | | $ | — |
| | $ | — |
| | $ | 339,850 |
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Operating income | | 116,861 |
| | 7,553 |
| | — |
| | — |
| | 124,414 |
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Other non-operating items | | (3,671 | ) | | — |
| | 2,688 |
| | — |
| | (983 | ) |
Total non-operating expense | | (54,660 | ) | | — |
| | 2,688 |
| | — |
| | (51,972 | ) |
Income before income taxes | | 62,201 |
| | 7,553 |
| | 2,688 |
| | — |
| | 72,442 |
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Provision for income taxes | | 11,447 |
| | 2,780 |
| | 629 |
| | 8,086 |
| | 22,942 |
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Income from continuing operations | | 50,754 |
| | 4,773 |
| | 2,059 |
| | (8,086 | ) | | 49,500 |
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Earnings from continuing operations per share - diluted (a) | | $ | 0.23 |
| | $ | 0.02 |
| | $ | 0.01 |
| | $ | (0.04 | ) | | $ | 0.23 |
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(a) Per share amounts do not sum due to rounding. | | | | | | | | | | |
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| | | | Special Items | | | | | | | | | | | | |
Quarter ended March 31, 2021 | | GAAP measure | | Advisory fees related to activism defense | | Spectrum repacking reimbursements and other | | Non-GAAP measure | | | | | | | | | | |
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Corporate - General and administrative expenses | | $ | 16,870 | | | $ | (4,599) | | | $ | — | | | $ | 12,271 | | | | | | | | | | | |
Spectrum repacking reimbursements and other, net | | (1,423) | | | — | | | 1,423 | | | — | | | | | | | | | | | |
Operating expenses | | 531,121 | | | (4,599) | | | 1,423 | | | 527,945 | | | | | | | | | | | |
Operating income | | 195,930 | | | 4,599 | | | (1,423) | | | 199,106 | | | | | | | | | | | |
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Income before income taxes | | 148,446 | | | 4,599 | | | (1,423) | | | 151,622 | | | | | | | | | | | |
Provision for income taxes | | 35,614 | | | 1,180 | | | (367) | | | 36,427 | | | | | | | | | | | |
Net income attributable to TEGNA Inc. | | 112,617 | | | 3,419 | | | (1,056) | | | 114,980 | | | | | | | | | | | |
Net income per share-diluted | | $ | 0.51 | | | $ | 0.02 | | | $ | (0.01) | | | $ | 0.52 | | | | | | | | | | | |
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| | | | Special Items | | | | |
Quarter ended March 31, 2020 | | GAAP measure | | M&A due diligence costs | | Advisory fees related to activism defense | | Spectrum repacking reimbursements and other | | Gain on equity method investment | | Other non-operating items | | Special tax items | | Non-GAAP measure | | |
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Corporate - General and administrative expenses | | $ | 21,714 | | | $ | (4,588) | | | $ | (7,639) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 9,487 | | | |
Spectrum repacking reimbursements and other, net | | (7,515) | | | — | | | — | | | 7,515 | | | — | | | — | | | — | | | — | | | |
Operating expenses | | 509,651 | | | (4,588) | | | (7,639) | | | 7,515 | | | — | | | — | | | — | | | 504,939 | | | |
Operating income | | 174,538 | | | 4,588 | | | 7,639 | | | (7,515) | | | — | | | — | | | — | | | 179,250 | | | |
Equity (loss) in unconsolidated investments, net | | 9,015 | | | — | | | — | | | — | | | (12,071) | | | — | | | — | | | (3,056) | | | |
Other non-operating items, net | | (19,270) | | | — | | | — | | | — | | | — | | | 21,744 | | | — | | | 2,474 | | | |
Total non-operating expenses | | (67,215) | | | — | | | — | | | — | | | (12,071) | | | 21,744 | | | — | | | (57,542) | | | |
Income before income taxes | | 107,323 | | | 4,588 | | | 7,639 | | | (7,515) | | | (12,071) | | | 21,744 | | | — | | | 121,708 | | | |
Provision for income taxes | | 21,125 | | | 1,151 | | | 1,919 | | | (1,990) | | | (3,033) | | | 5,463 | | | 3,944 | | | 28,579 | | | |
Net income attributable to TEGNA Inc. | | 86,308 | | | 3,437 | | | 5,720 | | | (5,525) | | | (9,038) | | | 16,281 | | | (3,944) | | | 93,239 | | | |
Net income per share-diluted (a) | | $ | 0.39 | | | $ | 0.02 | | | $ | 0.03 | | | $ | (0.03) | | | $ | (0.04) | | | $ | 0.07 | | | $ | (0.02) | | | $ | 0.43 | | | |
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(a) Per share amounts do not sum due to rounding | | | | | | | | | | | | | | |
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| | | | Special Items | | |
Quarter ended September 30, 2016 | | GAAP measure | | Severance expense | | Operating asset impairment and facility consolidation | | Other non-operating items | | Non-GAAP measure |
| | | | | | | | | | |
Operating expenses | | $ | 333,766 |
| | $ | (2,870 | ) | | $ | (15,218 | ) | | $ | — |
| | $ | 315,678 |
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Operating income | | 185,851 |
| | 2,870 |
| | 15,218 |
| | — |
| | 203,939 |
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Other non-operating items | | (11,874 | ) | | — |
| | — |
| | 13,161 |
| | 1,287 |
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Total non-operating expense | | (70,673 | ) | | — |
| | — |
| | 13,161 |
| | (57,512 | ) |
Income before income taxes | | 115,178 |
| | 2,870 |
| | 15,218 |
| | 13,161 |
| | 146,427 |
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Provision for income taxes | | 38,441 |
| | 1,112 |
| | 5,900 |
| | 3,515 |
| | 48,968 |
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Income from continuing operations | | 76,737 |
| | 1,758 |
| | 9,318 |
| | 9,646 |
| | 97,459 |
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Earnings from continuing operations per share - diluted (a) | | $ | 0.35 |
| | $ | 0.01 |
| | $ | 0.04 |
| | $ | 0.04 |
| | $ | 0.45 |
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(a) Per share amounts do not sum due to rounding.
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| | | | Special Items | | |
Nine Months Ended September 30, 2017 | | GAAP measure | | Severance expense | | Operating asset impairment | | Other non-operating items | | Tax benefits | | Non-GAAP measure |
| | | | | | | | | | | | |
Operating expenses | | $ | 1,022,651 |
| | $ | (3,053 | ) | | $ | (11,086 | ) | | $ | — |
| | $ | — |
| | $ | 1,008,512 |
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Operating income | | 390,052 |
| | 3,053 |
| | 11,086 |
| | — |
| | — |
| | 404,191 |
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Other non-operating items | | (26,853 | ) | | — |
| | — |
| | 31,991 |
| | — |
| | 5,138 |
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Total non-operating expense | | (190,515 | ) | | — |
| | — |
| | 31,991 |
| | — |
| | (158,524 | ) |
Income before income taxes | | 199,537 |
| | 3,053 |
| | 11,086 |
| | 31,991 |
| | — |
| | 245,667 |
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Provision for income taxes | | 54,855 |
| | 1,174 |
| | 4,104 |
| | 6,921 |
| | 11,724 |
| | 78,778 |
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Income from continuing operations | | 144,682 |
| | 1,879 |
| | 6,982 |
| | 25,070 |
| | (11,724 | ) | | 166,889 |
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Earnings from continuing operations per share - diluted | | $ | 0.66 |
| | $ | 0.01 |
| | $ | 0.03 |
| | $ | 0.12 |
| | $ | (0.05 | ) | | $ | 0.77 |
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| | | | Special Items | | |
Nine Months Ended September 30, 2016 | | GAAP measure | | Severance expense | | Operating asset impairment | | Equity investment impairment | | Other non-operating items | | Non-GAAP measure |
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Operating expenses | | $ | 959,344 |
| | $ | (20,118 | ) | | $ | (18,946 | ) | | $ | — |
| | $ | — |
| | $ | 920,280 |
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Operating income | | 497,889 |
| | 20,118 |
| | 18,946 |
| | — |
| | — |
| | 536,953 |
|
Equity (loss) income in unconsolidated charges | | (2,763 | ) | | — |
| | — |
| | 1,869 |
| | — |
| | (894 | ) |
Other non-operating items | | (16,029 | ) | | — |
| | — |
| | — |
| | 16,324 |
| | 295 |
|
Total non-operating expense | | (194,236 | ) | | — |
| | — |
| | 1,869 |
| | 16,324 |
| | (176,043 | ) |
Income before income taxes | | 303,653 |
| | 20,118 |
| | 18,946 |
| | 1,869 |
| | 16,324 |
| | 360,910 |
|
Provision for income taxes | | 92,038 |
| | 7,799 |
| | 7,345 |
| | 725 |
| | 4,583 |
| | 112,490 |
|
Income from continuing operations | | 211,615 |
| | 12,319 |
| | 11,601 |
| | 1,144 |
| | 11,741 |
| | 248,420 |
|
Earnings from continuing operations per share - diluted | | $ | 0.96 |
| | $ | 0.06 |
| | $ | 0.05 |
| | $ | 0.01 |
| | $ | 0.05 |
| | $ | 1.13 |
|
| | | | | | | | | | | | |
Adjusted RevenuesEBITDA - Non-GAAP
Reconciliations of adjusted revenuesAdjusted EBITDA to our revenuesnet income presented in accordance with GAAP on our Consolidated Statements of Income are presented below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Mar. 31, | | |
| 2021 | | 2020 | | Change | | | | | | |
| | | | | | | | | | | |
Net income attributable to TEGNA Inc. (GAAP basis) | $ | 112,617 | | | $ | 86,308 | | | 30 | % | | | | | | |
Plus (Less): Net income (loss) attributable to redeemable noncontrolling interest | 215 | | | (110) | | | *** | | | | | | |
Plus: Provision for income taxes | 35,614 | | | 21,125 | | | 69 | % | | | | | | |
Plus: Interest expense | 46,485 | | | 56,960 | | | (18 | %) | | | | | | |
Plus (Less): Equity loss (income) in unconsolidated investments, net | 1,329 | | | (9,015) | | | *** | | | | | | |
(Less) Plus: Other non-operating items, net | (330) | | | 19,270 | | | *** | | | | | | |
Operating income (GAAP basis) | 195,930 | | | 174,538 | | | 12 | % | | | | | | |
| | | | | | | | | | | |
Plus: M&A due diligence costs | — | | | 4,588 | | | *** | | | | | | |
| | | | | | | | | | | |
Plus: Advisory fees related to activism defense | 4,599 | | | 7,639 | | | (40 | %) | | | | | | |
Less: Spectrum repacking reimbursements and other, net | (1,423) | | | (7,515) | | | (81 | %) | | | | | | |
Adjusted operating income (non-GAAP basis) | 199,106 | | | 179,250 | | | 11 | % | | | | | | |
Plus: Depreciation | 15,896 | | | 16,900 | | | (6 | %) | | | | | | |
Plus: Amortization of intangible assets | 15,760 | | | 16,216 | | | (3 | %) | | | | | | |
Adjusted EBITDA (non-GAAP basis) | 230,762 | | | 212,366 | | | 9 | % | | | | | | |
Corporate - General and administrative expense (non-GAAP basis) | 12,271 | | | 9,487 | | | 29 | % | | | | | | |
Adjusted EBITDA, excluding Corporate (non-GAAP basis) | $ | 243,033 | | | $ | 221,853 | | | 10 | % | | | | | | |
| | | | | | | | | | | |
*** Not meaningful | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Sept. 30, | | Nine months ended Sept. 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
| | | | | | | | | | | |
Advertising & Marketing Services (a) | $ | 277,817 |
| | $ | 330,589 |
| | (16.0 | %) | | $ | 843,175 |
| | $ | 934,977 |
| | (9.8 | %) |
Political | 3,783 |
| | 38,060 |
| | (90.1 | %) | | 13,386 |
| | 64,050 |
| | (79.1 | %) |
Subscription | 177,692 |
| | 143,676 |
| | 23.7 | % | | 540,345 |
| | 436,292 |
| | 23.8 | % |
Other | 4,972 |
| | 4,696 |
| | 5.9 | % | | 15,797 |
| | 13,883 |
| | 13.8 | % |
Cofactor | — |
| | 2,596 |
| | *** |
| | — |
| | 8,031 |
| | *** |
|
Total company revenues (GAAP basis) | $ | 464,264 |
| | $ | 519,617 |
| | (10.7 | %) | | $ | 1,412,703 |
| | $ | 1,457,233 |
| | (3.1 | %) |
Factors impacting comparisons: | | | | | | | | | | | |
Estimated incremental Olympic and Super Bowl | $ | — |
| | $ | (28,300 | ) | | *** |
| | $ | — |
| | $ | (37,210 | ) | | *** |
|
Political | (3,783 | ) | | (38,060 | ) | | (90.1 | %) | | (13,386 | ) | | (64,050 | ) | | (79.1 | %) |
CoFactor (sold in December 2016) | — |
| | (2,596 | ) | | *** |
| | — |
| | (8,031 | ) | | *** |
|
Discontinued digital marketing services | — |
| | (13,893 | ) | | *** |
| | (16,673 | ) | | (40,509 | ) | | (58.8 | %) |
Total company adjusted revenues | $ | 460,481 |
| | $ | 436,768 |
| | 5.4 | % | | $ | 1,382,644 |
| | $ | 1,307,433 |
| | 5.8 | % |
| | | | | | | | | | | |
(a) Includes traditional advertising, digital advertising as well as revenue from our DMS businesses. |
Excluding the impacts of Political revenue, impacts from the discontinued DMS transition services agreement, the absence of Cofactor revenue, and estimated prior year incremental Olympic and Super Bowl revenue, total company adjusted revenues on a comparable basis increased five percent in the third quarter and six percent inIn the first nine monthsquarter of 2017 compared to the same periods in 2016.
2021 Adjusted EBITDA - Non-GAAP
Reconciliations of Adjusted EBITDA to net income from continuing operations attributable to TEGNA Inc. presented in accordance with GAAP on our Consolidated Statements of Income are presented below (in thousands): |
| | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Sept. 30, | | Nine months ended Sept. 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
| | | | | | | | | | | |
Net income from continuing operations (GAAP basis) | $ | 50,754 |
| | $ | 76,737 |
| | (34 | %) | | $ | 144,682 |
| | $ | 211,615 |
| | (32 | %) |
Provision for income taxes | 11,447 |
| | 38,441 |
| | (70 | %) | | 54,855 |
| | 92,038 |
| | (40 | %) |
Interest expense | 51,855 |
| | 57,601 |
| | (10 | %) | | 162,113 |
| | 175,444 |
| | (8 | %) |
Equity loss in unconsolidated investments, net | (866 | ) | | 1,198 |
| | *** |
| | 1,549 |
| | 2,763 |
| | (44 | %) |
Other non-operating items | 3,671 |
| | 11,874 |
| | (69 | %) | | 26,853 |
| | 16,029 |
| | 68 | % |
Operating income (GAAP basis) | 116,861 |
| | 185,851 |
| | (37 | %) | | 390,052 |
| | 497,889 |
| | (22 | %) |
Severance expense | — |
| | 2,870 |
| | *** |
| | 3,053 |
| | 20,118 |
| | (85 | %) |
Asset impairment and facility consolidation charges | 7,553 |
| | 15,218 |
| | (50 | %) | | 11,086 |
| | 18,946 |
| | (41 | %) |
Adjusted operating income (non-GAAP basis) | 124,414 |
| | 203,939 |
| | (39 | %) | | 404,191 |
| | 536,953 |
| | (25 | %) |
Depreciation | 15,186 |
| | 13,212 |
| | 15 | % | | 41,721 |
| | 42,653 |
| | (2 | %) |
Amortization of intangible assets | 5,395 |
| | 5,775 |
| | (7 | %) | | 16,172 |
| | 17,542 |
| | (8 | %) |
Adjusted EBITDA (non-GAAP basis) | 144,995 |
| | 222,926 |
| | (35 | %) | | 462,084 |
| | 597,148 |
| | (23 | %) |
Corporate - General and administrative expense, exclusive of depreciation (non-GAAP basis) | 12,881 |
| | 14,470 |
| | (11 | %) | | 41,402 |
| | 42,308 |
| | (2 | %) |
Adjusted EBITDA, excluding Corporate (non-GAAP basis) | $ | 157,876 |
| | $ | 237,396 |
| | (33 | %) | | $ | 503,486 |
| | $ | 639,456 |
| | (21 | %) |
Third quarter 2017 adjusted EBITDA margin was 34%33% without corporate expense or 32% with corporate expense, compared to first quarter of 2020 Adjusted EBITDA margin of 32% without corporate expense or 31% with corporate.corporate expense. Our total Adjusted EBITDA decreased $77.9increased $18.4 millionor35% in the thirdfirst quarter of 20172021 compared to 2016 and decreased $135.1 million or 23% for the first nine months of 2017 from the prior year comparable period. The decrease2020. This increase was primarily driven by higher programming costs (due to 11 of our NBC stations which began making reverse compensation payments for the first time),operational factors discussed above within the absence of Olympic revenue in 2017 and the expected decline in political revenue in 2017.
Certain Matters Affecting Future Operating Results
The following items will affect year-over-year comparisons for 2017 results:
Revenues - In the fourth quarter of 2017 revenue will be impacted primarily due to the absence of $82 million in net political revenues compared to the fourth quarter of 2016, and the absence of $16 million of DMS revenue due to the conclusion of a transition services agreement with Gannett.
Based on current trends, we expect total company revenues on a GAAP basis compared to the prior year quarter to be down in the high-single to low double-digits. Adjusting to remove political revenue and revenue related to the terminated transition services agreement, we expect our fourth quarter adjusted company revenues to be up in the high single-digit to low double-digits year-over-year.
Programming Costs - Beginning in January 2017, 11 of our NBC stations began making reverse compensation payments for the first time. As such, 2017 is an unusual year as there will be an unfavorable gap betweenoperating expense fluctuation explanation sections, most notably, the increase in subscription revenue we earn from multichannel video programming distributors (MVPD),annual rate increases under existing and newly renegotiated retransmission agreements and increase in AMS revenue.
Free Cash Flow Reconciliation
Our free cash flow, a non-GAAP performance measure, was $158.7 million in the first quarter of 2021 compared to the increase in fees we will pay our affiliates. At the end of 2016, we renegotiated several new subscriptions agreements with major MVPD carriers, and as a result, we have reduced our net retransmission gap in 2017 to approximately $31$142.2 million to $34 million. Further, we expect our strategic initiatives launched in 2016 (including Premion, centralized pricing initiatives, and Hatch) will more than offset the remaining net retransmission gap in 2017.
Income Taxes - After the spin-off of Cars.com and disposition of CareerBuilder, the recurring effective income tax rate for 2018 is anticipated to be approximately 35%. This estimated effective income tax rate is higher than that for the third quarter and the first nine months of 2017 duesame period in 2020.
Reconciliations from “Net income” to tax benefits associated with the spin-off of Cars.com and other non-recurring items realized in 2017.“Free cash flow” follow (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended Mar. 31, |
| | | | | | | 2021 | | 2020 | | Change |
| | | | | | | | | | | |
Net income attributable to TEGNA Inc. (GAAP basis) | | | | | | | $ | 112,617 | | | $ | 86,308 | | | 30 | % |
Plus: Provision for income taxes | | | | | | | 35,614 | | | 21,125 | | | 69 | % |
Plus: Interest expense | | | | | | | 46,485 | | | 56,960 | | | (18 | %) |
| | | | | | | | | | | |
Plus: M&A due diligence costs | | | | | | | — | | | 4,588 | | | *** |
| | | | | | | | | | | |
Plus: Depreciation | | | | | | | 15,896 | | | 16,900 | | | (6 | %) |
Plus: Amortization | | | | | | | 15,760 | | | 16,216 | | | (3 | %) |
Plus: Stock-based compensation | | | | | | | 8,761 | | | (757) | | | *** |
Plus: Company stock 401(k) contribution | | | | | | | 5,304 | | | 5,138 | | | 3 | % |
Plus: Syndicated programming amortization | | | | | | | 16,977 | | | 18,175 | | | (7 | %) |
| | | | | | | | | | | |
| | | | | | | | | | | |
Plus: Advisory fees related to activism defense | | | | | | | 4,599 | | | 7,639 | | | (40 | %) |
Plus: Cash dividend from equity investments for return on capital | | | | | | | 1,357 | | | 208 | | | *** |
Plus: Cash reimbursements from spectrum repacking | | | | | | | 1,423 | | | 7,515 | | | (81 | %) |
Plus: Other non-operating items, net | | | | | | | (330) | | | 19,270 | | | *** |
Plus (Less): Net income (loss) attributable to redeemable noncontrolling interest | | | | | | | 215 | | | (110) | | | *** |
Plus (Less): Income tax receipts (payments) | | | | | | | 33 | | | (793) | | | *** |
Plus (Less): Equity loss (income) in unconsolidated investments, net | | | | | | | 1,329 | | | (9,015) | | | *** |
Less: Spectrum repacking reimbursements and other, net | | | | | | | (1,423) | | | (7,515) | | | (81 | %) |
Less: Syndicated programming payments | | | | | | | (15,721) | | | (17,865) | | | (12 | %) |
Less: Pension contributions | | | | | | | (935) | | | (2,309) | | | (60 | %) |
Less: Interest payments | | | | | | | (76,045) | | | (66,240) | | | 15 | % |
Less: Purchases of property and equipment | | | | | | | (13,185) | | | (13,264) | | | (1 | %) |
Free cash flow (non-GAAP basis) | | | | | | | $ | 158,731 | | | $ | 142,174 | | | 12 | % |
| | | | | | | | | | | |
*** Not meaningful | | | | | | | | | | | |
Liquidity, Capital Resources and Cash Flows
Our operations have historically generated strong positive cash generation capability and financial condition, togetherflow which, along with our significant borrowing capacityavailability under our existing revolving credit agreement, arefacility and cash and cash equivalents on hand, have been sufficient to fund our capital expenditures, interest expense, dividends, share repurchases, investments in strategic initiatives (including acquisitions) and other operating requirements. Over
The COVID-19 pandemic has had far-reaching material adverse impacts on many aspects of our operations, directly and indirectly, including our employees, consumer behavior, distribution of our content, our vendors, and the longer term, we expectoverall market. The full impact of the COVID-19 pandemic, particularly with regard to continuethe broader advertising industry, remains uncertain and continues to fund debt maturities, acquisitionsevolve. However, during the first quarter of 2021, the U.S. economy continued on a path towards recovery with millions of Americans receiving COVID-19 vaccines and investments through a combinationstates and municipalities increasingly reopening. In addition, the U.S. federal government continued to enact policies to provide fiscal stimulus to the economy and relief to those affected by the pandemic, with the most recent stimulus expected to bolster household finances as well as those of cash flows from operations, borrowings under our revolving credit agreementsmall businesses, states and funds raised inmunicipalities.
The roll out of vaccines together with lower COVID-19 case counts are encouraging. The improving conditions around the capital markets. As we summarize below, during 2017 we have completed severalpandemic, coupled with strategic actions that have positioned us to be able to pursue strategic acquisition opportunities that may develop inwe’ve taken over the past couple years with our sector, invest in new content2020 and revenue initiatives,2019 debt refinancings and grow revenue in fiscal year 2018.
During the second quarter we completedreduction of discretionary spending has helped strengthened our spin-off of Cars.com which resulted in a one-time tax-free cash distribution of $650.0 million to TEGNA. We used $609.9 million of the tax-free distribution proceeds to fully pay down our then outstanding revolving credit agreement borrowings.
financial position. On July 31, 2017, we sold our majority ownership interest in CareerBuilder. Our share of the pre-tax net cash proceeds from the sale was $198.3 million, net of cash transferred of $36.6 million. Additionally, prior to the sale, CareerBuilder issued a final dividend to its selling shareholders, of which $25.8 million was retained by TEGNA. On October 16 2017, we used the net proceeds from the CareerBuilder sale, the remaining cash distribution proceeds from Cars.com of $40.1 million, and cash on hand to early retire $280.0 million of principal of unsecured notes due in October 2019.
On August 1, 2017, we amended our Amended and Restated Competitive Advance and Revolving Credit Agreement. Under the amended terms, our maximum total leverage ratio will remain at 5.0x through June 30, 2018, after which, as amended, it will be reduced to 4.75x through June 2019 and then to 4.5x until the expiration of the credit agreement on JuneMarch 29, 2020. Lastly, on September 19, 2017,2021, we announced that our Board of Directors authorizedapproved a newdividend increase of ten cents per share repurchase program for upon an annual basis, to $300 million$0.38 per common share (approximately 2.0% dividend yield as of our common stock overMarch 31, 2021), which represents an approximately 36% increase above the next three years.
At the endprior dividend. The increase of the third quarterdividend demonstrates the Board’s and management’s confidence in our business and continued focus on making prudent, disciplined decisions intended to drive near and long-term shareholder value. Our capital allocation decisions focus on optimizing investments in organic and inorganic growth opportunities, paying down debt, issuing dividends, and repurchasing shares.
As of 2017,March 31, 2021, we were in compliance with all covenants contained in our debt agreements and credit facility and our leverage ratio, calculated in accordance with our revolving credit agreement and term loan agreements, was 3.77x, well below the permitted leverage ratio of less than 5.5x. The leverage ratio is calculated using annualized adjusted EBITDA (as defined in the agreement) for the trailing eight quarters. We believe that we will remain compliant with all covenants for the foreseeable future.
We often present a different leverage ratio in our investor communications than the one required to be computed by our revolving covenant agreement. The ratio disclosed in our investor communications, which is regularly reviewed by our management and our board of directors, was 3.82x as of March 31, 2021. The primary difference between this computation and the leverage ratio calculated in accordance with our revolving credit agreement is the definition of adjusted EBITDA in the revolving credit agreement version requires additional adjustments to add back non-cash compensation and contractual synergy benefits during periods in the trailing eight quarters that preceded a particular acquisition.
As of March 31, 2021, our total debt was $3.32$3.52 billion, and cash and cash equivalents totaled $383.4 million. As of September 30, 2017,$12.9 million, and we had unused borrowing capacity of $1.5 $1.17 billion under our revolving credit facility. We intend to continue to invest in organic and strategic growth opportunities and also intend to maintain the financial flexibility to pursue strategic acquisitions when appropriate. Approximately $3.23 billion, or 91%, of our debt has a fixed interest rate.
Our financial and operating performance, as well as our ability to generate sufficient cash flow to maintain compliance with credit facility covenants, are subject to certain risk factors; see the Part II. Other Information,factors. See Item 1A. Risk“Risk Factors, discussion below.” in our 2020 Annual Report on Form 10-K for further discussion. We expect our existing cash and cash equivalents, cash flow from our operations, and borrowing capacity under the revolving credit facility will be more than sufficient to satisfy our debt service obligations, capital expenditure requirements, and working capital needs for the next twelve months.
Cash Flows
The following table provides a summary of our cash flow information followed by a discussion of the key elements of our cash flow (in thousands):
| | | | | | | | | | | |
| Three months ended Mar. 31, |
| 2021 | | 2020 |
| | | |
| | | |
| | | |
Balance of cash and cash equivalents beginning of the period | $ | 40,968 | | | $ | 29,404 | |
| | | |
Operating activities: | | | |
Net income | 112,832 | | | 86,198 | |
Depreciation, amortization and other non-cash adjustments | 47,050 | | | 28,482 | |
Pension contributions, net of income | (4,410) | | | (3,642) | |
Decrease (increase) in trade receivables | (63,120) | | | 38,131 | |
Increase in interest and taxes payable | 4,320 | | | 8,775 | |
Other, net | (38,601) | | | 19,420 | |
Cash flow from operating activities | 58,071 | | | 177,364 | |
| | | |
Investing activities: | | | |
Payments for acquisitions of businesses and other assets, net of cash acquired | (13,341) | | | (15,000) | |
All other investing activities | (9,890) | | | (563) | |
Cash flow used for investing activities | (23,231) | | | (15,563) | |
| | | |
Cash flow used for financing activities | (62,955) | | | (156,146) | |
(Decrease) increase in cash and cash equivalents | (28,115) | | | 5,655 | |
Balance of cash and cash equivalents end of the period | $ | 12,853 | | | $ | 35,059 | |
|
| | | | | | | |
| Nine months ended Sept. 30, |
| 2017 | | 2016 |
| | | |
Cash and cash equivalents from continuing operations, beginning of period | $ | 15,879 |
| | $ | 26,096 |
|
Cash and cash equivalents from discontinued operations, beginning of period | 61,041 |
| | 103,104 |
|
Balance of cash and cash equivalents, beginning of the period | 76,920 |
| | 129,200 |
|
| | | |
Operating activities: | | | |
Net (loss) income | (88,579 | ) | | 343,756 |
|
Loss on write down of CareerBuilder | 342,900 |
| | — |
|
Depreciation, amortization and other non-cash adjustments | 153,242 |
| | 197,025 |
|
Pension (contributions), net of expense | (12,547 | ) | | 2,135 |
|
Spectrum channel share agreement proceeds | 32,588 |
| | — |
|
Other, net | (76,421 | ) | | (88,153 | ) |
Net cash flows from operating activities | 351,183 |
| | 454,763 |
|
Net cash from (used for) investing activities | 152,499 |
| | (273,309 | ) |
Net cash used for financing activities | (197,248 | ) | | (203,325 | ) |
Increase (decrease) in cash and cash equivalents | 306,434 |
| | (21,871 | ) |
| | | |
Cash and cash equivalents from continuing operations, end of period | 383,354 |
| | 19,185 |
|
Cash and cash equivalents from discontinued operations, end of period | — |
| | 88,144 |
|
Balance of cash and cash equivalents, end of the period | $ | 383,354 |
| | $ | 107,329 |
|
Operating Activities -Cash flow from operating activities was $351.2$58.1 million for the ninethree months ended September 30, 2017,March 31, 2021, compared to $454.8 million for the nine months ended September 30, 2016. The decrease in net cash flow from operating activities was primarily due to higher programming costs of $135.1 million (primarily due to the NBC affiliation agreement), the decline in political revenue of $50.7 million, and the absence of operating cash flow Cars.com and CareerBuilder following their spin-off and sale, respectively. These decreases were partially offset by declines in tax payments of $40.6 million and interest payments of $19.8 million. Also partially offsetting the net operating cash flow decrease was a cash inflow received in 2017 of $32.6 million from a spectrum channel sharing agreement.
Investing Activities -Cash flow from investing activities totaled $152.5 million for the nine months ended September 30, 2017, compared to cash used for investing activities of $273.3$177.4 million for the same period 2016.in 2020. Driving the decrease was a change in accounts receivable of $101.3 million primarily due year over year increases in AMS and subscription revenue of $27.7 million and $53.9 million, respectively, and a change in accounts payable of $18.7 million.
Investing Activities -Cash flow used for investing activities was $23.2 million for the three months ended March 31, 2021, compared to $15.6 million for the same period in 2020. The 2017 net cash inflowincrease was primarily due to a result of$6.1 million decline in spectrum repack reimbursements. Also contributing to the sale of the majority of our ownershipdecline was a $5.0 million decrease in CareerBuilder, which provided $198.3 million of proceeds net of cash transferred. Additionally, we had cash inflow of $15.1 million from the sale of assets primarily comprised of proceeds of $14.6 million from the sale of Gannett Co., Inc., common stock. These inflows were partially offset by purchases of property and equipment of $63.8 million in 2017.business.
The 2016 net cash used for investing activities of $273.3 million was primarily comprised of $196.8 million paid for the acquisitions of businesses (net of cash acquired) and purchase of property and equipment in the amount of $68.6 million.
Financing Activities - Cash flow used for financing activities totaled $197.2was $63.0 million for the ninethree months ended September 30, 2017,March 31, 2021, compared to $203.3$156.1 million net outflow for the same period in 2016.2020. The 2017 net outflow of cash for financing activitieschange was primarily due to debt activity in 2020. Specifically, in January 2020 we issued $1.0 billion of unsecured notes, the proceeds of which were used to early redeem $650.0 million of unsecured notes due in October 2023 and dividends. With regards$310.0 million due in July 2020. We incurred combined debt issuance and early redemption fees of $27.6 million related to 2017 debt activity, prior to the completion of the spin-off, Cars.com borrowed approximately $675.0these actions. Additionally, we paid down $37.0 million under aon our revolving credit facility agreement, while incurring $6.2 million of debt issuance costs. The proceeds were used to make a one time tax-free cash distribution of $650.0 million from Cars.com to TEGNA. We used most of the cash received to pay down our then outstanding revolving credit balance of $609.9 million. Total net payments on the revolving credit facilityearly in the first nine monthsquarter of 2017 were $635.0 million. We used an additional $99.22021 as compared to $118.0 million to pay down other existing debt. Additionally, in 2017 we made dividend payments of $75.1 million, paid a final dividend to the noncontrolling owners of CareerBuilder of $23.0 million, and transferred $20.1 million to Cars.com in connection with the spin-off.
The 2016 net financing outflow of $203.3 million was primarily a result of stock repurchases of $150.9 million and dividend payments of $91.6 million. These outflows were partially offset by a net debt inflow of $58.7 million primarily comprised of $310.0 million of borrowings which were partially offset by debt repayments of $249.6 million.
Non-GAAP Liquidity Measure
Our free cash flow, a non-GAAP liquidity measure, was $287.3 million for the first nine monthsquarter of 2017 compared to $386.2 million for the same period in 2016. Our free cash flow for the first nine months of 2017 was lower than the first nine months of 2016 because of the same factors affecting cash flow from operating activities discussed above. Free cash flow, which we reconcile to “Net cash flow from operating activities,” is cash flow from operating activities reduced by “Purchase of property and equipment.” We believe that free cash flow is a useful measure for management and investors to evaluate the level of cash generated by operations and the ability of our operations to fund investments in new and existing businesses, return cash to shareholders under our capital program, repay indebtedness or to use in other discretionary activities.2020.
Reconciliations from “Net cash flow from operating activities” to “Free cash flow” follow (in thousands):
|
| | | | | | | | | | | |
| | | | | Nine months ended September 30, |
| | | | | 2017 | | 2016 |
| | | | | | | |
Net cash flow from operating activities | | | | | $ | 351,183 |
| | $ | 454,763 |
|
Purchase of property and equipment | | | | | (63,846 | ) | | (68,577 | ) |
Free cash flow |
| |
| | $ | 287,337 |
| | $ | 386,186 |
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Certain Factors Affecting Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q contain forward-looking statements regarding business strategies, market potential, future financial performance and other matters.matters, which include, but are not limited to the adverse impacts caused by the COVID-19 pandemic and its effect on our revenues, particularly our non-political advertising revenues. The words “believe,” “expect,” “estimate,” “could,” “should,” “intend,” “may,” “plan,” “seek,” “anticipate,” “project” and similar expressions, among others, generally identify “forward-looking statements”. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results and events to differ materially from those anticipated in the forward-looking statements, including those described underwithin Item 1A. “Risk Factors” in our 20162020 Annual Report on Form 10-K.
Our actual financial results may be different from those projected due to the inherent nature of projections. Given these uncertainties, forward-looking statements should not be relied on in making investment decisions. The forward-looking statements contained in this Form 10-Q speak only as of the date of its filing. Except where required by applicable law, we expressly disclaim a duty to provide updates to forward-looking statements after the date of this Form 10-Q to reflect subsequent events, changed circumstances, changes in expectations, or the estimates and assumptions associated with them. The forward-looking statements in this Form 10-Q are intended to be subject to the safe harbor protection provided by the federal securities laws.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For quantitative and qualitative disclosures about market risk, refer to the following section of our 20162020 Annual Report on Form 10-K: “Item 7A. Quantitative and Qualitative Disclosures about Market Risk.” Our exposureexposures to market risk has been reducedhave not changed materially since December 31, 2016, due to the sale2020.
As of March 31, 2021, approximately $3.23 billion of our majority ownership in CareerBuilder, whichdebt has decreaseda fixed interest rate (which represents approximately 91%, of our exposure to changes in foreign exchange rates related to CareerBuilder’s international operations.
Astotal principal debt obligation). Our remaining debt obligation of September 30, 2017, we had $379.2 $318 million in long-termhas floating rate obligations outstanding.interest rates. These obligations fluctuate with market interest rates. By way of comparison, a 50 basis points increase or decrease in the average interest rate for these obligations would result in a change in annualizedannual interest expense of approximately $1.9 $1.6 million. The fair value of our total debt, based on bid and ask quotes for the related debt, totaled $3.49 $3.72 billion as of September 30, 2017,March 31, 2021 and $4.19$3.79 billion as of December 31, 2016.2020.
Item 4. Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2017.March 31, 2021. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective, as of September 30, 2017,March 31, 2021, to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
There have been no material changes in our internal controls or in other factors during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Other than ordinary, routine litigation incidentalSee Note 9 to the condensed consolidated financial statements for information regarding our business, neither we nor any of our subsidiaries currently is party to any material pending legal proceeding.proceedings.
Item 1A. Risk Factors
While we attempt to identify, manage and mitigate risks and uncertainties associated with our business, some level of risk and uncertainty will always be present. “Item 1A. Risk Factors” of our 20162020 Annual Report on Form 10-K describes the risks and uncertainties that we believe may have the potential to materially affect our business, results of operations, financial condition, cash flows, projected results and future prospects. The information below describesWe do not believe that there have been any material changes from the risk
factors previously disclosed in our 20162020 Annual Report on Form 10-K and should be read in conjunction with the risk factors and information described therein.10-K.
The spin-off of our Cars.com business and sale of our majority ownership interest in CareerBuilder has reduced the size and diversification of our business, which in turn increases our exposure to the changes and highly competitive environment of the broadcast industry.
We now operate as a single business segment which is more exposed to the increased competition and changing regulatory environment within the broadcast industry. Broadcast companies operate in a highly competitive environment and compete for audiences, advertising & marketing services revenue and quality programing. Lower audience share, declines in advertising & marketing services revenue and increased programming costs would adversely affect our business, financial condition and results of operations.
In addition, the Federal Communications Commission (FCC) and Congress are contemplating several new laws and changes to existing media ownership and other broadcast-related regulations, regarding a wide range of matters (including permitting companies to own more stations in a single market, as well as owning more stations nationwide). Changes to FCC rules may lead to additional opportunities and increased uncertainty in the industry. We cannot be assured that we will be able to compete successfully in the future against existing, new or potential competitors, or that competition and consolidation in the media marketplace will not have a material adverse effect on our business, financial condition or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On September 19, 2017, we announced thatIn December 2020, our Board of Directors authorized a newthe renewal of our share repurchase program for up to $300.0 million of our common stock over the next three years. DuringThe shares may be repurchased at management’s discretion, either on the thirdopen market or in privately negotiated block transactions. Management’s decision to repurchase shares will depend on price and other corporate developments. Purchases may occur from time to time and no maximum purchase price has been set. In the first quarter of 2017,2021, no shares were repurchased.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
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Exhibit Number | | Description | | Location |
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3-1 | | | | |
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3-1-1 | | | | |
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3-1-2 | | | | |
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3-2 | | | | |
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10-1 | | Tenth Amendment, dated as of August 1, 2017, to the Amended and Restated Competitive Advance and Revolving Credit Agreement, dated as of December 13, 2004 and effective as of January 5, 2005, as amended and restated as of August 5, 2013, and as further amended, among TEGNA Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the several banks and other financial institutions from time to time parties thereto. | | |
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31-110-2 | | |
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31-1 | | | | |
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31-2 | | | | |
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32-1 | | | | |
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32-2 | | | | |
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101101.INS | | The following financial information from TEGNA Inc. Quarterly Report on Form 10-Q forInline XBRL Instance Document - the quarter ended September 30, 2017, formattedinstance document does not appear in the Interactive Data File because its XBRL includes: (i) Condensed Consolidated Balance Sheets at September 30, 2017tags are embedded within the Inline XBRL document.
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101.SCH | | Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF | | Inline XBRL Taxonomy Extension Definition Document. |
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101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104 | | Cover Page Interactive Data File (formatted as Inline XBRL and December 31, 2016, (ii) Consolidated Statements of Income for the quarter and year-to-date periods ended September 30, 2017 and September 30, 2016, (iii) Consolidated Statements of Comprehensive Income for the quarter and year-to-date periods ended September 30, 2017 and September 30, 2016, (iv) Condensed Consolidated Cash Flow Statements for the year-to-date periods ended September 30, 2017 and September 30, 2016, and (v) the notes to unaudited condensed consolidated financial statements.
contained in Exhibit 101). |
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We agree to furnish to the Commission, upon request, a copy of each agreement with respect to long-term debt not filed herewith in reliance upon the exemption from filing applicable to any series of debt representing less than 10% of our total consolidated assets.
* Asterisks identify management contracts and compensatory plans and arrangements.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Date: May 10, 2021 | TEGNA, INC. |
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Date: November 8, 2017 | TEGNA INC. |
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| /s/ Clifton A. McClelland III |
| Clifton A. McClelland III |
| Senior Vice President and Controller |
| (on behalf of Registrant and as ChiefPrincipal Accounting Officer) |